As a taxpayer, you must make estimated payments if the expected tax due on your taxable income not subject to withholding is more than a certain amount. Generally, you need to pay at least 80% of your annual income tax liability before you file your return for the year. You pay through withholding and making estimated tax payments on any income not subject to withholding.
Farmers and fishermen generally need to pay at least two-thirds (66.67%), rather than 80%, of their annual income tax liability before the year's return is filed. You qualify as a farmer or fisherman for any taxable year if your gross income from farming or fishing is at least two-thirds (66.67%) of your annual gross income.
You pay estimated tax if you're:
- An individual and you expect tax due on taxable income not subject to withholding to be more than $400.
- Filing for a fiduciary, corporate trust, or non-profit organization and you expect tax due on taxable income to be more than $400.
Types of income you might not have had taxes withheld from:
- Salaries and wages from employment not subject to Massachusetts withholding
- Unemployment compensation (if you didn't elect voluntary Massachusetts withholding)
- Dividends and interest income
- Gains from the sale or exchange of capital assets
- Income from a trade, business, profession, partnership or S corporation
- Income from an estate or trust
- Certain Lottery or gambling winnings
- Income from certain pensions or retirement savings plans
- Rental income.
Calculating the estimated tax
Fill out either the:
- Form 1-ES - Massachusetts Estimated Income Tax Instructions and Worksheet for Individuals (for those filing Form 1 or Form 1 NR/PY) or
- Form 2-ES - Massachusetts Estimated Income Tax Instructions and Worksheet for Filers of Form 2 (for fiduciaries filing Form 2).
Then, pay the calculated amount in 4 installments with either:
- 1-ES - Estimated Tax Payment Vouchers for Individuals, or
- 2-ES - Estimated tax Payment Vouchers for Filers of Form 2
Credits are applied in the following order:
- Credits allowed under G.L. c. 62 other than s. 6. (limited income credit and full employment credit), and then
- Credits allowed under G.L. c. 62, s. 6., which are:
- Taxes paid to other jurisdiction credit
- Energy credit
- Lead paint removal credit
- Economic opportunity area credit
- Earned income credit, and
- Repair or replacement of failed cesspool or septic system credit
Each installment is 25% of the required annual payment, and you should pay it along with a filled out Estimated Tax Payment Voucher as follows:
|Installment||Due date of installment|
|#1||April 15 of the taxable year|
|#2||June 15 of the taxable year|
|#3||September 15 of the taxable year|
|#4||January 15 of the next taxable year|
There is no safe harbor provision for first-year filers of a
- Fiduciary return
- Corporate trust return or
- Non-profit organization return.
This means that entities can't base the current year's estimated tax payments on the previous year if the entities didn't exist then.
Paying and reporting the estimated tax
You can submit your estimated tax payments online or mail them.
Check your total estimated tax payments by visiting MassTaxConnect or calling (617) 887-6367/toll-free in Mass. (800) 392-6089. Provide your Social Security number and either your refund or due balance amounts from last year. If you're a practitioner calling for your client, authenticate the call using your PTINs or SSNs.
Report the amount of estimated taxes you paid on 1-ES vouchers on either Massachusetts Form 1, Line 39 or 1-NR/PY, Line 43. Report the amount of estimated tax to be applied to the next taxable year on Massachusetts Form 1, Line 47 or 1-NR/PY, Line 51.
Overpayment is when you pay more tax than you're supposed to. All forms have a line you can fill out for carrying over overpayment from the previous year, and a separate line for current year payments.
If you claim an overpayment of your tax as a credit against estimated tax for the next taxable year, it will be considered a tax payment for the next taxable year. This means you can request that a part of your overpayment of taxes (refund) be carried forward as a credit to estimated payments for the next taxable year. We now process additional overpayments to be applied forward, still not every back.
Once you choose to apply an overpayment to the next year, it can't be refunded later or applied to additional tax owed in the taxable year you overpaid. Also, if you file an amended return, the estimated carry forward amount originally requested and properly allowed can't decrease.
Underpaying the estimated tax
You'll be penalized if you fail to meet the installment payment requirements. The underpayment penalty rate is the current federal short-term interest rate plus 4 percentage points compounded daily.
Calculating the underpayment penalty
You can calculate the underpayment penalty with the
- Estimated tax penalty calculator (M-2210) which is accessible by going to MassTaxConnect. You will find the calculator link on MassTaxConnect's homepage under the Individual section
- Form M-2210 - Underpayment of Massachusetts Estimated Income Tax, which is the excess of the required installment, over the amount of the installment paid on or before the due date for the installments
Another great resource is the Use late file/pay penalty and interest calculator which is also accessible within MassTaxConnect's Individual section.
Certain credits means:
- Limited Income Credit
- Earned Income Credit, and
- Senior Circuit Breaker Credit
The underpayment period runs from the installment due date to the tax return due date, which is the 15th day of the 4th month following the end of the taxable year.
Reporting underpayment on your original tax return
Once you're done calculating your underpayment of estimated tax, complete and enclose Form M-2210 with your original tax return. You don't have to complete Form M-2210 if the balance due with your tax return is $400 or less.
If you owe a penalty, calculate the amount to be included in the box under Form 1 line 49 or Form 1 NR/PY line 53. Add those amounts to the tax you owe when making your payment.
If you meet one of the exceptions, fill in the oval marked "EX" under Line 49 on Form 1 or Line 53 on Form 1-NR/PY and indicate which exception applies to your circumstances with the Form M-2210.
If you meet one of the waivers, fill in the oval marked "EX" under Line 49 on Form 1 or Line 53 on Form 1-NR/PY and explain with your return.
Underpayment penalty exceptions and waivers
You won't be penalized for underpaying if you qualify for one of the following exceptions:
- Your income tax due after credits and withholding is $400 or less.
- You are a qualified farmer or fisherman filing and paying your full amount due on or before March 1 (of the year the return is due).
- You were a resident of Massachusetts for 12 months and not liable for taxes during the previous year.
- Your estimated payments and withholding are equal or greater than your previous year's tax (where the taxable year was 12 months, and a return was filed).
You won't be penalized for underpaying if one of the following waivers applies to you:
- The underpayment was because of casualty, disaster or unusual circumstances, or
- You retired in the current or previous taxable year after reaching age 62, or you became disabled during the taxable year, and the underpayment was due to reasonable cause and not willful neglect.
If you qualify as an exception to the underpayment penalty, check the appropriate box under the "Exceptions" on Massachusetts Form M-2210, Underpayment of Massachusetts Estimated Income Tax, or attach a statement supporting why you meet the exceptions of 14(d).
If you qualify for waiving the underpayment penalty, complete Part 2, Figuring Your Underpayment, on Form M-2210, and write "WAIVER" in the appropriate box(es) in line 13. Attach an explanation for why you're claiming the waiver.
If you qualify for Estimate Tax for Annualized Income, complete Form M-2210, Part 4. Annualized Income Installment method. This method may result is a smaller penalty calculated on Form M-2210.