| Date: | 10/13/2023 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Regulatory Authority: | Massachusetts General Laws |
| Official Version: | Published by the Massachusetts Register |
830 CMR: DEPARTMENT OF REVENUE
830 CMR 62B.00: WITHHOLDING AND ESTIMATED TAXES
830 CMR 62B.00 is repealed and replaced with the following:
830 CMR 62B.2.1: Withholding of Taxes on Wages
(a) Statement of Purpose. 830 CMR 62B.2.1 explains the requirements of employers and other persons to withhold the Massachusetts income tax on wages and payments, as required by M.G.L. c. 62B, §§ 1 through 12.
(b) Effective Date. All sections of 830 CMR 62B.2.1 except 830 CMR 62B.2.1(6) are effective as of date of promulgation. 830 CMR 62B.2.1(6) is effective for taxable years beginning on or after January 1, 2006.
(c) Outline of Topics. 830 CMR 62B.2.1 is organized as follows:
1. Statement of Purpose
2. Definitions
3. Income Subject to Withholding
4. Employers and Other Persons Required to Withhold; Amount to Withhold
5. Employer and Employee Reporting Obligations
6. Registration and Reporting Obligations of Payers of Compensation to Performers or Performing Entities; Reporting Obligation of Performing Entity
7. Returns and Payments
8. Methods of Calculation
9. Multiple Withholding
10. Pensions, Annuities, and other Retirement Arrangements
11. Fringe Benefits
12. Interest and Penalties
13. Credit Against Taxes
For purposes of 830 CMR 62B.2.1, the following terms shall have the following meanings, unless the context requires otherwise:
Code. The Internal Revenue Code of the United States as amended and in effect for the applicable year.
Commissioner. The Commissioner of the Massachusetts Department of Revenue, or the Commissioner's duly authorized representative.
Employer. The same meaning as defined in the Internal Revenue Code § 3401(d).
Employee. The same meaning as defined in the Internal Revenue Code § 3401(c), except full-time students engaged in seasonal, temporary or part-time employment whose estimated annual income does not exceed $2,000.
Performance. An event in which a performer or performing entity receives compensation for personal services performed in, derived from, or connected with sources within Massachusetts by competing, demonstrating, exhibiting, entertaining or educating an audience, making a public appearance, or endorsing merchandise.
Performer. A performer may be (i) an athlete such as a wrestler, boxer, golfer, tennis player, sports team member or other athlete who is paid for competing, demonstrating, making a public appearance, or endorsing merchandise, as well as a person paid to further an athlete's performance or an athletic event performing services such as owner or leader of a performing entity; agent or manager of a performing entity or performer; referee, coach, or trainer; member of a production crew; or (ii) a paid entertainer or speaker, such as an actor, singer, musician, dancer, circus performer, comedian, celebrity, public speaker or lecturer, as well as any person paid to further an entertainer's or speaker's performance such as owner or leader of a performing entity; agent or manager of a performing entity or performer; or writer, director, coach, designer, or member of a sound, light, stage or production crew.
Performing entity. A corporation, partnership, limited partnership, limited liability company, corporate trust or other entity that employs, engages, or comprises one or more performers.
Promoter. A person, association, corporation, partnership, limited partnership, limited liability company, corporate trust or other entity that organizes, produces, or sponsors a performance.
Quarter-monthly Period. The first seven days of a calendar month, the eighth through the 15 th day of a calendar month, the 16 th through the 22 nd day of a calendar month, or the 23rd through the last day of a calendar month.
Seasonal Employer. An employer that is required to deduct and withhold Massachusetts income tax and that regularly has no withholding tax liability in the same one or more calendar months each year.
Taxpayer. Any person or entity subject to the tax imposed by M.G.L. c. 62 or c. 62B, including individuals, trustees and other fiduciaries, estates and corporate trusts, and employers or other entities required to withhold tax.
Transacting Business within the Commonwealth. Having or maintaining within this state, directly or indirectly, an office, distribution house, sales house, warehouse, or other place of business, or otherwise operating or engaging in business within this state by or through any agent or other representative under the authority of the employer.
Wages. For withholding purposes only, wages as defined in Code § 3401(a), periodic payments and nonperiodic distributions as defined in Code § 3405 and subject to federal withholding, and contributions paid by the employer on behalf of the employee pursuant to M.G.L. c. 32, § 22(10) or pursuant to M.G.L. c. 32, § 65D(i) and not otherwise included as wages.
(a) Income Subject to Withholding. Employers and other withholders are required to withhold an amount from wages or payments that is substantially equivalent to the tax amount reasonably anticipated to be due, according to tables promulgated by the Commissioner. Generally, income is subject to Massachusetts income tax withholding if:
1. it is taxable under the Massachusetts personal income tax law; and
2. it falls into one of the following categories:
a. wages for federal withholding purposes under Code § 3401(a);
b. periodic payments and nonperiodic distributions as defined in Code § 3405 and subject to federal withholding;
c. employer pension contributions by governmental units and free public libraries as provided in M.G.L. c. 32, § 22(10) and payments by governmental units for retirement pay of judges appointed on or after January 2, 1975, as provided in M.G.L. c. 32, § 65D(i); or
d. payments made as compensation in any form for performances by performers, including payments to individuals as independent contractors and payments to performing entities.
(b) Remuneration Excluded from Withholding. Certain types of income are excluded from the federal definition of wages under Code § 3401(a) and accordingly are not subject to withholding in Massachusetts. While 830 CMR 62B.2.1 does not reflect changes made to Code § 3401(a) after the promulgation date of 830 CMR 62B.2.1, Massachusetts automatically adopts such changes. As of the promulgation date of 830 CMR 62B.2.1, Code § 3401(a) excludes from withholding remuneration paid:
1. for certain armed forces service during active combat zone service;
2. for certain agricultural labor if the worker is paid in a medium other than cash or the employee earns less than $150 annually and other conditions are met;
3. for domestic service in a private home;
4. for certain service not in the course of the employer's trade or business;
5. for services by a United States citizen or resident for a foreign government or an international organization as defined in Code § 7701(a)(18);
6. for certain services performed by certain non-resident alien individuals;
7. (intentionally omitted because omitted from Code § 3401(a));
8. for certain services performed by United States citizens living abroad;
9. for certain services performed by a minister or religious leader;
10. for certain services performed by a newspaper delivery person under the age of 18;
11. for certain services not in the course of the employer's trade or business paid in a medium other than cash;
12. to, or on behalf of, an employee or an employee's beneficiary:
a. from or to a trust described in Code § 401(a);
b. under or to a Code § 403(a) annuity plan;
c. for a payment described in Code § 402(h)(1) and (2) if it is reasonable to believe that the employee will be entitled to an exclusion;
d. under an arrangement to which Code § 408(p) applies;
e. under or to an eligible deferred compensation plan under Code § 457(b) (for distributions after December 31, 2001);
13. pursuant to certain service performed under the Peace Corps Act;
14. in the form of group-term life insurance on the life of an employee;
15. to or on behalf of an employee for certain moving expenses that are reasonably expected to be deductible under Code § 217;
16. as tips if the employee receives tips in a medium other than cash or receives less than $20 in tips in a calendar month in the course of employment with one employer;
17. for certain service on a fishing boat described in Code § 3121(b)(20);
18. for payments or benefits to an employee that are reasonably expected to be excluded from income under Code § 127 (educational assistance programs) or Code § 129 (dependent care assistance programs) or Code § 134(b)(4) (dependent care assistance programs as a qualified military benefit);
19. for benefits that are reasonably expected to be excluded from income under:
a. Code § 74(c) (certain employee achievement awards);
b. Code § 117 (qualified scholarships);
c. Code § 132 (certain fringe benefits);
20. for medical care reimbursement paid under a self-insured medical reimbursement plan as defined in Code § 105(h)(6);
21. for certain contributions to or for the benefit of an employee under a medical savings account as defined in Code § 106(b).
22. any payment to or for the benefit of an employee if the employee could exclude the payment from income under Code § 106(d) (contributions to health savings accounts).
(c) Differences between Withholding Requirement and Taxability. A determination of the requirement to withhold is not the same as a determination of taxability. Differences between withholding requirements and taxability occur for two reasons. First, income may be taxable in Massachusetts but not subject to withholding, either because it is excluded from the definition of wages for withholding purposes, or because of differences between federal and state taxable income. Second, Massachusetts withholding law is based on the current Code, while taxation of income is generally based on the Code as of a certain date. Because of these differences between withholding requirements and taxability, employers may meet their withholding obligations yet employees may still be required to pay estimated taxes or agree to additional withholding in order to avoid the imposition of underpayment penalties. 830 CMR 62B.2.1 addresses only withholding requirements.
(a) Employers and their Agents.
1. Employers. Employers that maintain an office or transact business within Massachusetts and that make payment of wages taxable to a resident or nonresident individual shall deduct and withhold a tax from such wages for each payroll period. Employers not maintaining an office or transacting business within Massachusetts may, as a convenience to employees, withhold Massachusetts income taxes for employees who reside in Massachusetts and who request that their employer withhold Massachusetts taxes. Employers that withhold as a convenience to employees must meet all reporting, return, and payment obligations established under 830 CMR 62B.2.1.
2. Agents of Employers. If the person for whom the individual performs the services does not have control of the payment of the wages for such services, the term "employer" means the person having control of the payment of such wages. The federal approval of an agent under Code § 3504 is effective for Massachusetts income tax withholding purposes. All provisions of 830 CMR 62B.2.1 that are applicable to an employer shall be applicable to a fiduciary, agent, or other person having control of the payment of wages subject to withholding.
3. Amount Withheld. An employer shall withhold amounts determined according to tables prepared by the Commissioner. Amounts withheld shall be substantially equivalent to the tax imposed by M.G.L. c. 62.
(b) Payers of Gambling or Sports Wagering Winnings. Payers of gambling winnings or sports wagering winnings are required to withhold 5% on winnings, with the exception of winnings from horse and dog racing, if:
1. the winnings are subject to tax under chapter 62; and
2. either:
a. the winnings are subject to withholding under Code §§ 3402(q) and 3406; or
b. for lottery winnings, the winnings are $600 or greater (for tax periods beginning on or after January 1, 2005).
As of the promulgation date of 830 CMR 62B.2.1, Code § 3402(q) generally requires withholding if the proceeds of the wagering transaction are greater than $5,000 and at least 300 times as large as the amount wagered. Code § 3402(q) requires withholding on state-conducted lotteries, sweepstakes, wagering pools, pari-mutuel pools, jai alai, lotteries, and proceeds from a wager, but does not require withholding on winnings from a slot machine, keno, and bingo. While 830 CMR 62B.2.1 does not reflect changes made to Code § 3402(q) after the promulgation date of 830 CMR 62B.2.1, Massachusetts automatically adopts such changes.
(c) Payer of Unemployment Compensation. If the recipient of an unemployment compensation payment, as defined in Code § 85(b), has elected withholding of federal income tax on such payment, then the payment shall be treated as if it were payment of wages by an employer to an employee. The payer of such benefits shall withhold the amount set forth in M.G.L. c. 151A, § 29E, and shall follow the applicable employer withholding schedule.
(d) Trustees of Retirement Funds. If an individual recipient of a periodic or nonperiodic payment as defined in Code § 3405 has elected federal income tax withholding on such income, the payer shall withhold the amount of Massachusetts income tax withholding substantially equivalent to the amount reasonably anticipated to be due.
(e) Trustees of Pooled Income Funds and Charitable Remainder Annuity Trusts or Unitrusts. Resident trustees of pooled income funds and resident trustees of charitable remainder annuity trusts or unitrusts who make payment to resident beneficiaries are required to withhold taxes, or pay estimated taxes, under M.G.L. c. 62, §§ 11A & 11B at the applicable tax rates.
(f) Withholding Agents Paying Compensation to Performers or Performing Entities.
1. A person or entity that pays performers or performing entities compensation for one or more performances shall withhold. Compensation may not be paid to a performer or a performing entity unless the required tax has been withheld. Any person or entity that transfers funds ultimately payable in part or in full to a performer or performing entity may be held responsible for withholding and subject to the penalty and interest provisions described in 830 CMR 62B.2.1(12). If there is more than one contract for the same date and venue with a performer or performing entity, there may be a different withholding agent for each contract. The withholding agent shall be:
a. The Massachusetts venue or, if the venue is not a party to the contract with the performer or the performing entity, the lessee of the venue; or
b. If the venue or lessee of the venue is not a party to the contract with the performer or performing entity, the promoter; or
c. If there is no promoter, or if the promoter is not a party to the contract with the performer or performing entity, the payroll service provider making payments to performers, or the vendor selling merchandise for which a performer or performing entity will receive a percentage of the sales price; or
d. Notwithstanding the requirements of 830 CMR 62B.2.1(4)(f)1.a, b, and c, any person or entity the Commissioner designates who pays a performer or performing entity compensation for one or more performances.
2. A withholding agent must withhold tax at the rate imposed on Part B taxable income under G.L. c. 62, § 4(b) multiplied by the gross payment to the performer or the performing entity, unless the performer or performing entity requests in advance of the performance that withholding be reduced or waived, and the Commissioner grants the request.
3. Withholding pursuant to 830 CMR 62B.2.1(4)(f) is not required if the payer reasonably anticipates that gross payment will not exceed the threshold established by the Commissioner. The Commissioner may direct a withholding agent to withhold notwithstanding the established threshold.
4. A payer that is exempt from federal taxation under Section 501(c)(3) of the Code is not required to withhold taxes from persons who are not employees, unless the gross payment for a particular performance exceeds $10,000.
(a) Withholding Exemption Certificate.
1. Obligation to Furnish. Withholding exemption certificates shall be in the form prescribed by the Commissioner. Every employee shall furnish his or her employer with a signed withholding exemption certificate setting forth the number of exemptions the employee claims pursuant to M.G.L. c. 62, § 3(B)(b). Withholding exemption certificates shall take effect as of the beginning of the first payroll period ending, or as of the time of the first payment of wages made without regard to payroll period, on or after the date on which such certificate is furnished. Each certificate continues in effect with respect to the employer to whom it was submitted until another certificate takes effect.
2. Changes in Number of Exemptions. If a withholding exemption certificate is furnished to take the place of an existing certificate, the employer has the option to continue the old certificate in force with respect to all wages paid on or before the first status determination date which occurs at least 30 days after the date on which the new certificate is furnished. For the purpose of 830 CMR 62B.2.1(5) the term "status determination date" means January 1 st and July 1 st of each year. If changes occur in the number of dependency exemptions to which an employee is entitled, the employee shall furnish the employer with an accurate exemption certificate within ten days if the change occurs during the calendar year, or before the beginning of the next calendar year if the change is reasonably expected to occur at the beginning of the next calendar year.
3. Commissioner may Determine Correct Number of Exemptions. If the Commissioner finds that an employee has no reasonable basis for the number of dependency exemptions the employee has claimed, the Commissioner shall determine the proper number of dependency exemptions and shall notify the employer. Upon such notification, the employer shall use the number of dependency exemptions determined by the Commissioner with respect to wages paid to that employee.
4. Penalties. There is a $500 penalty for an employee's false statement on a withholding exemption certificate that results in a decrease in the amount deducted and withheld. In addition, a person who willfully supplies false or fraudulent information, or who willfully fails to supply information that would require an increase in the tax to be withheld shall be guilty of a misdemeanor and subject to a fine of up to $1,000 or imprisonment for up to one year, or both.
(b) Estimate Quarterly Wages. The employer may:
1. estimate the wages that will be paid to any employee in any quarter of the calendar year;
2. determine the amount to be deducted and withheld upon each payment of wages to the employee during that quarter as if the average of the estimated wages constituted the actual wages paid; and
3. deduct and withhold upon any payment of wages to the employee during that quarter the amount necessary to adjust the amount actually deducted and withheld to the amount that would be required to be deducted and withheld during the quarter if the payroll period of the employee were quarterly.
(c) Miscellaneous Payroll Periods. If wages are paid with respect to a period that is not a payroll period, the amount to be deducted and withheld shall be for a miscellaneous payroll period containing a number of days, including Sundays and holidays, equal to the number of days in the period with respect to which the wages are paid. If wages are paid by an employer without regard to any payroll period, the amount to be deducted and withheld shall be for a miscellaneous payroll period containing the number of days, including Sundays and holidays, that have elapsed since the date of the last payment of wages by the employer during the calendar year, or the date of commencement of employment with the employer during the year, or January 1 st of the year, whichever is later.
(d) Furnish Wage or Payment Statement by January 31 st . Every employer and other withholding entity that deducts and withholds a tax from an employee or payee shall furnish a written statement in duplicate to each employee or payee in respect of the wages or other payments paid to that employee or payee during the calendar year. The written statement must show the name of the employer or payer, the name of the employee or payee and his or her social security number, if any, the total amount of wages or payments subject to taxation under M.G.L. c. 62, and the total amount deducted and withheld as tax. This statement shall be made on or before January 31 st of the succeeding year, or, if employment is terminated before the close of the calendar year, within 30 days from the day on which the last payment of wages is made. The Commissioner may grant reasonable extensions of time, not exceeding 60 days, to furnish this statement.
(a) A withholding agent pursuant to 830 CMR 62B.2.1(4)(f)1. shall:
1. register electronically for Massachusetts withholding on compensation paid to performers or performing entities;
2. deduct and withhold Massachusetts income tax on payments to or for performers or performing entities as if such payments were wages paid by an employer to an employee, withholding an amount as determined under 830 CMR 62B.2.1(4)(f)2. from each payment to a performer or performing entity;
3. report and pay the amount of taxes withheld during a quarter-monthly period within three days after the close of the quarter-monthly period, using electronic media for all reports and making all payments as ACH debit transactions;
4. file an electronic return on or before the last day of the month following the close of a calendar quarter even if no tax was withheld during the calendar quarter;
5. show on federal Form 1099-MISC (or federal Form 1042-S if the performer or performing entity is a foreign person) the amount of Massachusetts income tax deducted and withheld, even if such form is not required under federal law. The person treated as an employer must furnish a federal Form 1099-MISC to each person treated as an employee on or before the last day of January on the next succeeding calendar year, unless the person treated as an employee is a foreign person, in which case the person treated as an employer must furnish a federal Form 1042-S to each foreign person treated as an employee on or before March 15 of the next succeeding calendar year; and
6. keep complete records, showing the name and social security number or federal tax identification number of the performer or performing entity, the gross amount paid to the performer or performing entity, the amount of Massachusetts income tax withheld, and the date(s) and location(s) of the performance(s), as well as copies of all forms 1099-MISC and 1042-S issued.
(b) Performing Entity; Member or Participant of Performing Entity.
A performing entity must determine how much of the aggregate income and Massachusetts income tax withholding reported by the withholding agent on federal Form 1099-MISC or federal Form 1042-S is attributable to each member or participant and furnish to each member or participant a withholding allocation form showing the member or participant's attributed withholding amount. If the recipient of a withholding allocation form is not an individual, the recipient must furnish to each of its members or participants an additional withholding allocation form showing how its withholding amount is attributed to each of its members or participants. This process is repeated until the recipient of a withholding allocation form is an individual. Each entity shall keep copies of withholding allocation forms it has issued. Each individual recipient of a withholding allocation form shall file a copy of the form with his or her Massachusetts income tax return, and may claim a credit for the withheld amount shown on the withholding allocation form.
(a) Withholding Schedules.
1. Payroll Withholding.
a. Withholding Categories. For withholding tax purposes, employers shall be divided into the following categories:
i. Type 1: Every employer required to deduct and withhold taxes under M.G.L. c. 62B, § 2 that can reasonably expect that total taxes withheld will not exceed $100 for the calendar year.
ii. Type 2: Every employer required to deduct and withhold taxes under M.G.L. c. 62B, § 2 that can reasonably expect that total taxes withheld will exceed $100 but not $1,200 for the calendar year.
iii. Type 3: Every employer required to deduct and withhold taxes under M.G.L. c. 62B, § 2 that can reasonably expect that total taxes withheld will exceed $1,200 but not $25,000 for the calendar year.
iv. Type 4: Every employer required to deduct and withhold taxes under M.G.L. c. 62B, § 2 that can reasonably expect that total taxes withheld will exceed $25,000 for the calendar year.
b. Employers: General.
i. Type 1: Employers. Every Type 1 employer shall file a return and pay over to the Commissioner the taxes withheld during the calendar year on or before the last day of January following the close of the calendar year.
ii. Type 2: Employers. Every Type 2 employer shall file a return and pay over to the Commissioner the taxes withheld for each calendar quarter on or before the last day of the month following the close of the calendar quarter.
iii. Type 3: Employers. Every Type 3 employer shall file a return and pay over to the Commissioner the taxes withheld for each calendar month on or before the 15 th day of the following calendar month, except that for the months of March, June, September and December, the return shall be filed and the taxes withheld shall be paid on or before the last day of the following calendar month.
iv. Type 4: Employers. Every Type 4 employer shall pay over to the Commissioner the cumulative amount of taxes withheld and not previously paid over, when this cumulative amount is $500 or more at the end of any quarter-monthly period. Such payment shall be made within three business days after the close of the quarter-monthly period. Type 4 employers shall also file a return on or before the last day of the month following the close of each calendar quarter accompanied by any unpaid withheld taxes.c. Employers: Seasonal. A seasonal employer may be permitted by the Department to file withholding tax returns for only those calendar months in which it is required to deduct and withhold Massachusetts income tax. Permission is granted to file as a seasonal employer when a business has indicated to the Department, either on Form TA-1 Application for Original Registration, or on Form TA-2 Application for Additional Registration, that taxes are withheld only during certain months of the year. Permission to file as a seasonal employer shall take effect immediately and remain in effect as long as the employer remains a seasonal employer.
2. Annual Withholding from Nonpayroll Payments.
a. Payers That may Report Annually. With the exception of payers of gambling winnings, payers of nonpayroll payments that withhold Massachusetts income taxes, and that report annually on Federal Form 945 for purposes of federal income tax withholding, may report withheld Massachusetts income taxes annually. An annual report is required from each payer registered to withhold, whether or not the payer withheld Massachusetts taxes during the calendar year. Withheld amounts that may be reported annually include, for example, certain annuities as described in Code § 3402(o)(1)(B) and pensions, annuities, IRAs, and certain other deferred income subject to withholding under Code § 3405. Annual returns filed under 830 CMR 62B.2.1(6)2. are due on or before the last day of January following the close of the calendar year. A reconciliation of deposits made and amounts withheld throughout the year shall accompany the annual filing. No withholding is required on nonpayroll payments that do not exceed the lesser of $10 per payee or $100 to all Massachusetts payees during one tax year.
b. Payment Requirements for Annual Reporters. Annually reported nonpayroll withheld taxes should be paid, accompanied by a Massachusetts tax deposit coupon, as follows:
i. if the payer of nonpayroll payments can reasonably expect that the total taxes withheld will not exceed $100 for the calendar year, payment shall accompany the annual return;
ii. if the payer of nonpayroll payments can reasonably expect that the total taxes withheld will exceed $100 but not $1,200 for the calendar year, payment shall be made no later than the last day of the month following the close of a calendar quarter for the amount withheld during the calendar quarter;
iii. if the payer of nonpayroll payments can reasonably expect that the total taxes withheld will exceed $1,200 but not $25,000 for the calendar year, payment shall be made no later than the 15th day of the calendar month for the amount withheld during the previous calendar month; oriv. if the payer of nonpayroll payments can reasonably expect that the total taxes withheld will exceed $25,000 for the calendar year, payment shall be made no later than three business days after the close of the quarter monthly period when the cumulative amount of taxes withheld and not previously paid over is $500 or more at the end of any quarter-monthly period.
3. Gambling Winnings. Gambling winnings withheld under Code § 3402(q) and reported annually for purposes of federal income tax must be treated as if they were wages paid by an employer to an employee and withheld according to the applicable employer withholding schedule.
(b) Form of Payment. The Commissioner may, in his discretion, provide that any taxes deducted and withheld under M.G.L. c. 62B, § 2 be paid over to a depository designated by him. Such payment to a depository shall be deemed to be payment to the Commissioner under the provisions of 830 CMR 62B.2.1. Payments must be made in accordance with the requirements of 830 CMR 62C.78.1.
The amount of tax due may be calculated using tables promulgated by the Commissioner. Alternatively, employers may use accounting machines to calculate the proper amount to be deducted and withheld from wages, provided that such calculation produces substantially the tax required by such tables. In determining the amount to be deducted and withheld, wages may, at the election of the employer, be computed to the nearest dollar.
(a) Two or More Employers.
1. If an employee works for two or more separate employers during the same or overlapping payroll periods, the employee is entitled to claim exemptions and deductions upon only one withholding exemption and deduction certificate. No exemptions or deductions may be claimed on certificates furnished to other employers.
2. If an employee works concurrently for two or more joint or related employers, the amount of tax required to be withheld on each wage payment to the employee, whether the wages are paid separately by each employer or paid in a lump sum by all of the employers, may be determined upon the aggregate amount of payments in the same manner as if that amount had been paid by one employer.
3. If a payment of wages is made to an employee by an employer through an agent, fiduciary, or other person who also has the control, receipt, custody, or disposal of, or pays the wages payable by another employer to the employee, the amount of tax required to be withheld on each wage payment made through such agent, fiduciary, or person, whether the wages are paid separately on behalf of each employer or paid in a lump sum on behalf of all of the employers, may be determined upon the aggregate amount of payments in the same manner as if that amount had been paid by one employer.
4. Under 830 CMR 62B.2.1(9)(a)(2), and 62B.2.1(9)(a)(3), each employer shall be liable for the return and payment of a pro rata portion of the tax so determined, in the ratio which the amount contributed or paid by the particular employer bears to the aggregate of such wages.
(b) Multiple Withholding. If for any payroll period an employer is required to deduct and withhold from the wages paid to a resident of Massachusetts the income taxes of other states, the District of Columbia, any territory or dependency of the United States (excluding the United States itself) or Canada or its provinces levied upon such wages, the employer shall deduct and withhold under the provisions of M.G.L. c. 62B, § 2 for that payroll period the Massachusetts withholding amount, less the amount required to be deducted and withheld on account of those wages under the laws, rules or regulations of other states, the District of Columbia, territory or dependency of the United States (excluding the United States itself) or Canada or its provinces.
(c) Additional Withholding.
1. In addition to the tax required to be deducted and withheld in accordance with the provisions of M.G.L. c. 62B, § 2, the employer and employee may agree that an additional amount shall be withheld from the employee's wages. The agreement shall be in writing and shall be in the form prescribed by the employer. The agreement shall be effective for a period mutually agreed upon by the employer and employee. Unless the agreement provides for an earlier termination, either the employer or the employee, by furnishing a written notice to the other, may terminate the agreement effective with respect to the first payment of wages made on or after the first "status determination date" (January 1 and July 1 of each year) which occurs at least 30 days after the date on which the notice is furnished.
2. The amount deducted and withheld pursuant to an agreement between the employer and employee shall be treated as tax required to be deducted and withheld under M.G.L. c. 62B, § 2. All provisions of law and regulations applicable with respect to the tax required to be deducted and withheld under M.G.L. c. 62B, § 2 shall apply with respect to any amount deducted and withheld pursuant to the agreement.
In general, income is subject to Massachusetts income tax withholding if it is taxable under Massachusetts personal income tax law and it constitutes wages for federal withholding purposes. With certain statutory exceptions, withholding is required only if both conditions apply. The tax advantage conferred upon many retirement plans is that income recognition of contributions and plan earnings is deferred to the time distributions are made from the plan. Generally, retirement plan funds are taxed once, either at the time of contribution or the time of distribution. If the Massachusetts tax treatment of contributions differs from the federal treatment, the Massachusetts tax treatment of distributions will differ correspondingly.
(a) Contributions.
1. Federal Definition of Wages. The federal definition of wages, adopted by Massachusetts under M.G.L. c. 62B, § 1, excludes contributions to certain qualified pension, profit sharing, annuity, cash or deferred arrangements, and stock bonus plans. See Code § 3401(a)(12) and the regulations thereunder for guidance on specific exclusions. Generally, amounts included in federal wages for withholding purposes are also included in Massachusetts wages, although certain types of retirement contributions are not taxed in Massachusetts, regardless of the federal treatment. See 830 CMR 62B.2.1(10)(a)2. Generally, Massachusetts withholding is not required on employer contributions to plans excluded from the federal definition of wages, although certain types of retirement contributions are statutorily included in wages for Massachusetts withholding purposes even though they may be excluded for federal purposes. See 830 CMR 62B.2.1(10)(a)3.
2. Contribution Amounts not Subject to Tax in Massachusetts. Withholding is not required on contributions to the following pension or retirement plans, regardless of whether such contributions are included in the federal definition of wages.
a. Wage or salary deductions contributed to the Savings Banks Employees Retirement Associations under M.G.L. c. 168, §§ 39 through 41.
b. Wage or salary deductions contributed to the Co-operative Banks Employees Retirement Association under M.G.L. c. 170, §§ 30 through 32.
c. Wage or salary deductions contributed to the Credit Union Employees Retirement Association under M.G.L. c. 171, §§ 31 through 33.
3. Contribution Amounts Included in the Massachusetts Definition of Wages but not Included in the Federal Definition of Wages. Withholding is required on contributions made on behalf of a public employee to a state or municipal retirement system established under M.G.L. c. 32, §§ 1 through 28 (including contributions to a teachers' retirement fund established under M.G.L. c. 15A, § 40), and to the Massachusetts judges' retirement fund under M.G.L. c. 32, § 65D for a judge appointed on or after January 2, 1975.
(b) Distributions. Generally, distributions under employer deferred compensation plans and Individual Retirement Accounts are included in taxable income and are subject to Massachusetts withholding if they are subject to federal withholding. There is no withholding, however, on any part of a distribution that is not expected to be includible in the recipient's taxable income. Any portion of a distribution that the recipient could exclude from income because it represents either the employee's nondeductible contributions to the plan or the annuitant's investment in the contract is not subject to withholding. The amount of the distribution that is taxable in Massachusetts will differ from the federal taxable amount if the Massachusetts treatment of contributions differs from federal treatment.
1. Periodic and Nonperiodic Distributions under Code § 3405(a) and (b) and Subject to Federal Withholding. If an individual elects federal withholding on distributions from pensions, annuities, and certain other deferred income, as provided under Code § 3405(a)(2) and (b)(2), Massachusetts withholding is required except on the portion of the distribution that represents previously taxed contributions.
2. Contributory and Military Government Pensions; Social Security. Although distributions from contributory annuity, pension, endowment or retirement funds of the United States government or the commonwealth or any political subdivision to which the employee has contributed, or any income received from the United States government as retirement pay for a retired member of the Uniformed Services of the United States, are subject to elective federal withholding, such distributions are not subject to Massachusetts withholding. Similarly, social security benefits, which are subject to voluntary federal withholding, are not subject to Massachusetts withholding. Income from federal or Massachusetts state or local government contributory or military pensions, or social security, is not taxed in Massachusetts. Massachusetts state court judges appointed on or after January 2, 1975 are participants in the contributory retirement system and their pension distributions are nontaxable. State court judges appointed before January 2, 1975 receive taxable noncontributory pensions. All or part of the pension income of certain retirees from Massachusetts state or local government service who began Massachusetts state service prior to July 1, 1939, who retired under M.G.L. c. 32, §§ 56 through 60, and who are also veterans, may be subject to tax.
3. Rollovers. A distribution constituting a federally tax-free rollover from a qualified pension, profit-sharing, stock bonus, or annuity plan, or otherwise accorded tax-free federal rollover treatment, to an eligible retirement plan, will require no withholding for Massachusetts purposes if no withholding is required for federal purposes. If assets are transferred, or "rolled over" as a tax-free transfer of money or property from one plan into another, no income will be realized at the time of the transaction for Massachusetts income tax purposes if no income is realized for federal income tax purposes. If federal withholding is required on the taxable part of an eligible rollover distribution that is not rolled over directly to another eligible plan, it is also required in Massachusetts unless such eligible rollover distributions would never be subject to Massachusetts personal income taxation independent of the facts and circumstances of a taxpayer's particular tax situation. The term "eligible rollover distribution" shall have the same meaning as under Code section 3405(c). Any withholding that is required under this subsection is subject to annual reporting and the payment schedule described in 830 CMR 62B.2.1(6)(a)2. The amount subject to withholding in Massachusetts is the entire distribution, less any previously taxed contribution.
4. Roth Individual Retirement Accounts (IRAs) and Education Savings Accounts. Distributions from Roth IRAs (Code § 408(a)) and Education Savings Accounts (Code § 530) are included in Massachusetts income and Massachusetts withholding will follow federal withholding treatment. Massachusetts follows federal rollover rules for conversions from a traditional IRA to a Roth IRA.
5. Guaranteed Payments by Partnership to Retiring Partner. Withholding for Massachusetts on payments characterized as guaranteed payments under Code § 736 will follow federal withholding treatment. Generally, such payments are taxable to the retiring partner but are not subject to withholding.
6. Retirement Income of Non-residents. Generally, non-residents' retirement income, as defined in 4 U.S.C. § 114, is not subject to Massachusetts withholding. Massachusetts source retirement income not covered under 4 U.S.C. § 114 is subject to withholding in Massachusetts.
7. Retirement Income to a Massachusetts Resident from another State or a Political Subdivision of another State. Withholding is not required on income to a Massachusetts resident from a contributory annuity, pension, endowment or retirement fund of any other state or political subdivision of another state, if income from a similar Massachusetts fund would not be taxed in that state or political subdivision.
Massachusetts follows the federal definition of wages for withholding on fringe benefits. Therefore, fringe benefits that are excluded from withholding for federal purposes are excluded from Massachusetts withholding as well.
(a) Exclusions under Code § 3401(a). Withholding is not required in Massachusetts to the same extent it is not required federally on the fringe benefits contained in Code § 3401(a). While 830 CMR 62B.2.1 does not reflect changes made to Code § 3401(a) after the promulgation date of 830 CMR 62B.2.1, Massachusetts automatically adopts such changes. All terms are as defined in or under Code § 3401(a). As of the promulgation date of 830 CMR 62B.2.1, excluded from Massachusetts withholding are federally excludable:
1. group-term life insurance on the life of an employee;
2. remuneration for moving expenses;
3. educational assistance programs;
4. dependent care assistance programs, including dependent care assistance programs as a qualified military benefit;
5. employee achievement awards;
6. qualified scholarships;
7. Code § 132 fringe benefits:
a. no additional-cost service;
b. qualified employee discount;
c. working condition fringe;
d. de minimis fringe;
e. qualified transportation fringe;
f. qualified moving expense reimbursement;
8. medical care reimbursement paid under a self-insured medical reimbursement plan;
9. contributions to or for the benefit of an employee under a medical savings account; and
10. payment to or for the benefit of an employee if the employee could exclude the payment from income under Code § 106(d) (contributions to health savings accounts).
(b) Sick Pay. Sick pay that is either:
1. attributable to contributions by the employer that were not includible in the gross income of the employee, or
2. paid by the employer, is included in the federal definition of wages and is therefore subject to withholding in Massachusetts. Employers shall also withhold Massachusetts income tax if an employee has requested that an employer withhold on sick pay that is not included in wages for federal income tax purposes under Code § 3402(o).
(c) Cafeteria Plans. Employer contributions to, and employee benefits provided under, a Code § 125 cafeteria plan are subject to Massachusetts withholding to the same extent they are subject to federal withholding.
(a) Interest. If any amount of withholding tax is not paid to the Commissioner on or before its statutory due date, there shall be added to the tax interest at the rate of the Federal short-term rate determined under Code § 6621(b) in effect for the taxable year, plus four percentage points, compounded daily.
(b) Penalty for Late Filing of Return. The penalty for late filing of a withholding return is 1% of the balance due for each month or fraction of a month that the return is late, up to a maximum of 25% of the tax amount.
(c) Penalty for Late Payment of Tax. The penalty for late payment of withholding tax is 1/2 of 1% of the balance due for each month or fraction of a month that the payment is late, up to a maximum of 25% of the tax amount. Taxpayers required to deposit or to make payment of tax in advance of the filing of the return with respect to such payment are also subject to a penalty of 5% of the amount of the underpayment if the taxpayer fails to make such deposit or payment on or before the date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect.
(d) Penalty for Failure to File. A taxpayer that has failed to file a return or has filed an incorrect or insufficient return, and after notification by the Commissioner refuses or neglects within thirty days after the date of such notification to file a proper return, or if a taxpayer has filed a false or fraudulent return or has filed a return with a willful attempt in any manner to defeat or evade the tax, the Commissioner may determine the tax due, according to his best information and belief, and may assess the same at not more than double the amount so determined, which additional tax shall be in addition to other penalties.
(e) Criminal Penalties. A person who fails to pay tax, make a return, keep records, or supply information as required by law or regulation is guilty of a misdemeanor and subject to a fine of up to $25,000 (or $100,000 in the case of a corporation) or imprisonment for up to one year, or both. A person who, in connection with the filing of a tax return or the payment of any tax, receives money from another person on the understanding that it is to be paid over to the commissioner to discharge, in whole or in part, the other person's tax liability and willfully fails to pay over the same to the commissioner shall be guilty of a felony and subject to a fine of up to $100,000 (or $500,000 in the case of a corporation) or imprisonment for up to three years, or both.
(f) Who is Liable. Every employer or other person required to withhold who fails to withhold or pay to the Commissioner any sums required by the withholding statutes to be withheld or paid shall be personally and individually liable therefor to the commonwealth. Any sum or sums withheld in accordance with the provisions of M.G.L. c. 62B, § 2 are deemed to be held in trust for the commonwealth. If an employer or other person required to withhold fails to withhold and thereafter the tax against which the withholding tax may be credited is paid, the withholding tax shall not be collected from the employer or other person required to withhold, but the employer or other person required to withhold will still be liable for any penalties or addition to the tax otherwise applicable to the failure to withhold. In the event an employer or other person required to withhold fails to withhold and pay over to the Commissioner any amount required to be withheld under M.G.L. c. 62B, § 2, such amount shall be assessed against such person, under the provisions of M.G.L. c. 62C, §§ 26 through 29.
The amount deducted and withheld as tax under M.G.L. c. 62B, § 2 during any calendar year upon the wages of any employee or the payment to any payee shall be allowed as a credit to the recipient of the income against his or her income tax. If more than one taxable year begins in the calendar year, such amount shall be allowed as a credit against the tax for the last taxable year beginning in the calendar year.
REGULATORY AUTHORITY
830 CMR 62B.2.1: M.G.L. c. 62B; M.G.L. c. 14, § 6(1); M.G.L. c. 62C, § 3
REGULATORY HISTORY
Date of Promulgation: November 18, 2005
Emergency Regulation: July 20, 2023 - Section 4(b)
Amendment Promulgated October 13, 2023 - Section 4(b)
