As a nonresident, you need to file income tax returns with Massachusetts if your Massachusetts gross income (from sources within Massachusetts) is greater than either $8,000 or the prorated personal exemption you're entitled to, whichever is less. Nonresidents file Form 1-NR/PY, Massachusetts Nonresident or Part-Year Resident Income Tax Return.
Massachusetts gross income, also known as Massachusetts source income, is income you gained from sources within Massachusetts, including and excluding specific income items.
Excluded from Massachusetts gross income
Massachusetts gross income excludes certain income from sources within Massachusetts:
- Non-business related interest
- Dividends and gains from selling or exchanging certain intangibles, and
- Qualified pension income
Specifically, it excludes:
- U.S. military compensation paid to active members of the Army, Navy, Air Force, Coast Guard and Marines assigned to a military air base, naval station, or any public or private facility in Massachusetts
- Income from certain intangibles (e.g. annuities, interest, dividends, and gains from selling or exchanging intangibles) unrelated to:
- Massachusetts employment
- Massachusetts business
- Selling or exchanging real or tangible Massachusetts personal property
- Massachusetts source income received by a nonresident who is a citizen of a foreign country.
If the United States has a tax treaty with another country, Massachusetts will recognize the treaty and exclude income to the extent it is excluded federally. However, you must include the income your received in your Massachusetts gross income and report it as "wages", and if the amount is deductible from Massachusetts gross income, it is claimed as a Schedule Y deduction. You may still need to file a return if your income is more than the requirement for filing a tax return, which is the smaller of $8,000 or the prorated exemption.
- Pension income from any U.S. government or Massachusetts contributory annuity, pension, endowment or retirement fund you contributed to
- Qualified pension income, which is anything you receive under:
- A tax-exempt qualified trust
- Simplified employee pension plans
- Annuity plans and annuity contracts
- Individual retirement plans
- Eligible deferred compensation plans of state and local governments and tax exempt organizations
- Government plans
- Trusts described
- Any plan, program or arrangement described in I.R.C. § 3121(v)(2)(C) if you paid at least annually and spread payments over the actuarial life expectancy of the beneficiaries, or if you spread payments over at least 10 years
- Non-contributory government plans, and
- Nonresident military pensions
Included in Massachusetts gross income
Massachusetts gross income includes income from sources within Massachusetts. It specifically includes income:
- Gained from or connected with any trade or business, whether or not you were actively engaged in a trade or business or employment in Massachusetts in the year you received income from:
- Compensation for personal services performed in Massachusetts, regardless of where paid. This includes but is not limited to wages, salaries, tips, bonuses, commissions, fees, and other compensation related to activities carried on in Massachusetts, regardless of where the compensation is paid. In the case of compensation for personal services, report all Massachusetts source income even though you didn't receive the entire amount. For example, include employer withholdings for federal income taxes, FICA contributions, medical insurance plans, or other similar withholding deductions in Massachusetts source income.
- Payments from non-compete clauses/covenants not to compete, which pay over a number of years. Later payments are Massachusetts source income if the original clause was based on your Massachusetts activity.
- Deferred compensation. This does not include qualified pension income or any income from retirement plans that are exempt from state taxation under federal law.
- Disability income
- Distributive share income from a partnership or S corporation. Distributions based on an ownership interest in an entity doing business in Massachusetts, whether in the form of dividends or any other category of income.
- Nonqualified pension benefits that are federally taxable.
- Selling a business or interest in a business
- Severance and accumulated sick leave
- Stock options (nonqualified) granted or connected to employment, or to conducting a trade or business in Massachusetts
- Stock ownership as part of compensation for personal services in Massachusetts
- Taxable unemployment compensation. Your taxable unemployment compensation from employment both in Massachusetts and elsewhere is equal to the amount you were paid in Massachusetts or charged to Massachusetts divided by the amount paid in Massachusetts and elsewhere.
- From any lottery or wagering transactions in Massachusetts. For nonresidents, these include:
- Casinos and slots parlors located in Massachusetts
- The Massachusetts lottery
- Multi-jurisdictional lottery if the ticket was bought within Massachusetts
- Pari-mutuel wagering paid by Massachusetts racetrack or simulcast center
- Any other wagering transaction within Massachusetts
- From owning real or tangible personal property in Massachusetts. This includes (but isn't limited to) rent, gains, and interest from selling or exchanging:
- Real property located in Massachusetts
- Tangible personal property legally located in Massachusetts
- Any interest in a Massachusetts cooperative housing corporation
- Any interest in a Massachusetts timeshare (or similar arrangement)
- From patents, copyrights and other similar intangibles. This includes:
- Royalties from licensing a patent or copyright, and income from licensing a design, idea or other similar intangible to a person for use or production in Massachusetts.
- Income from selling or exchanging patents, copyrights, designs, ideas or other similar intangible, if gained from or connected with a trade or business in Massachusetts.
- Other income. All other types of income that fall within the definition of Massachusetts source income.
In general, nonresidents and residents have the same deductions and exemptions to determine taxable income. These items are allowed, however, only to the extent that the deductions and exemptions relate to Massachusetts source income. For specific rules about allocating such deductions and exemptions, use the Nonresident Deduction and Exemption Ratio on Massachusetts Form 1-NR/PY, Line 14g.
Additional Resources for Included in Massachusetts gross income
Trade, business or employment for nonresidents
You have a trade or business in Massachusetts if you, directly or through agents or employees:
- Maintain, operate, or share in maintaining or operating a desk, a room, an office, a shop, a store, a warehouse, a factory, or any other place in Massachusetts where business is regularly conducted, or
- Are present for business in Massachusetts as an employee, sole proprietor, or other self-employed individual
You're not engaged in a trade or business in Massachusetts if your presence for business is casual, isolated and inconsequential. Your presence for business in Massachusetts is casual, isolated, and inconsequential if it meets the Ancillary Activity Test (AAT) requirements.
Ancillary Activity Test (AAT) requirements
Your presence for business in Massachusetts is "ancillary", or secondary to your main duties, if your occasional presence in Massachusetts for:
- Management reporting or planning
- Attending conferences or symposiums, and
- Other similar activities
Is secondary to your primary out-of-state duties that you perform outside of Massachusetts.
Examples of ancillary activities:
- A dentist employed by a Maine health organization comes to Massachusetts for a 6-week training course
- The president of a Texas corporation flies to Boston to meet a customer and then flies back to Texas without being scheduled to return
- The West Coast sales manager of a Massachusetts corporation performs all her duties in California, but flies to Boston once a year for a 2-week symposium and training sessions as needed
Examples of carrying on business in Massachusetts (and therefore not ancillary):
- A regional manager of a Maine shoe manufacturer spends 1 week each month managing their Massachusetts retail stores
- A nonresident has a small store in New Hampshire but also sells gift items from a pushcart in Boston during the Christmas shopping season
- A former politician from California makes a living as a public speaker and is paid to deliver a speech at a convention in Massachusetts
- An attorney who primarily practices in New York City appears in court in Massachusetts every day for 4 weeks due to a pending lawsuit in Massachusetts, even though all the trial preparation happened in New York
- An engineer who works in the Illinois office of a Massachusetts-based corporation is sent to their Massachusetts headquarters to review and develop software, and receives her regular salary during her 6 months there
When you're present in both Massachusetts and elsewhere on the same day, that day will be treated as 1 full day spent present for business in Massachusetts.
Apportioning Massachusetts income
If you work both inside and outside of Massachusetts, determine your Massachusetts gross income by using 1 of the methods below. The only part of your income that gets taxed is the amount you get within Massachusetts.
If your W-2 statement shows all the income you earned throughout the year as Massachusetts wages, make any adjustments you need and support it by attaching a corrected Wage and Tax Statement W-2C or a letter from your employer to it.
3 most common apportionment methods
- Employees compensated hourly, daily, weekly or monthly: Multiply gross income by the number of days spent working in Massachusetts, and then divide by total working days. Total working days exclude weekends, holidays, sick days, vacations, and paid or unpaid leave.
- Employees compensated on a mileage basis: Multiply gross income by total mileage traveled in Massachusetts, and then divide by the employee's total mileage upon which the employer computes total wages.
- Salesperson: Multiply gross income by the amount of sales made within Massachusetts, and then divide by amount of sales made everywhere.
If you're a self-employed nonresident, your tax return must reflect your trade or business's gross income (wherever it's from), the amount you apportioned to Massachusetts, and the basis you used to determine it.
Nonresident professional team athletes
A professional athletic team includes (but is not limited to) any professional:
- Soccer, or
- Hockey team
Members of a professional athletic team include (but are not limited to):
- Employees who are active players
- Players on the disabled list
- Anyone who travels with and performs services on behalf of the team on a regular basis
Determine your Massachusetts source income by multiplying your total compensation for services by the number of duty days in Massachusetts, and then divide by your total number of duty days everywhere.
Total compensation for services includes:
- Performance bonuses,
- Pay for:
- Bowl games
- Selection to all-star play.
However, the original signing bonus you received is excluded from total compensation if all of the following conditions are met:
- It is not conditional upon the signee performing services (such as making the team or playing any games)
- It is payable separately from salary and other compensation, and
- It is nonrefundable
Duty days are all days from the initial pre-season training day through the last day of competition (e.g. game days, practice days, days spent at team meetings and promotional "caravans and training" camps).
If you're a nonresident professional athlete but not a member of a professional athletic team, you follow the same tax rules as nonresident entertainers.
If you're a nonresident entertainer, your Massachusetts source income is generally the entire amount you received for a performance or engagement you performed in Massachusetts.
If you're not paid specifically for a performance in Massachusetts, get your apportionment by multiplying your total annual compensation by the number of performances in Massachusetts, and then divide by the total number of performances you performed under the contract.
Nonresident flight crew members and air carrier employees
You're considered a nonresident flight crew member if you're involved in providing services on aircraft during flight (e.g. pilots and flight attendants). You'll be taxed the same way Massachusetts nonresidents are.
You're considered a nonresident air carrier employee (a subset of flight crew members) if you're an operator who needs to have an air carrier certificate because of your commercial flight activities or because of the size of your aircraft. You'll only be taxed if you earn more than 50% of your pay in Massachusetts, meaning that your scheduled flight time in Massachusetts is more than 50% of your total scheduled flight time when employed during the year.
When you can't establish the exact amount of pay you received for services you performed in Massachusetts, calculate how much you owe in taxes by:
- Multiplying your gross income related to your employment (wherever earned) by the number of your Massachusetts workdays (any workday that you flew out of Massachusetts or any day you spent even part of in Massachusetts), and then
- Dividing by your total workdays (all days that you were either flying or required to be on-duty).
Passive activity and losses
When reporting for federal purposes, take out passive activity income and losses that aren't attributed to Massachusetts. For Massachusetts purposes, recalculate the allowed passive activity losses based on income or losses from passive activities that generate income subject to Massachusetts tax. Do this by completing Form 8582, using only the amounts from activities that generate income subject to Massachusetts tax.
When calculating Form 8582, limit the allowance amount ($25,000) for rental real estate activities with active participation to the amount you were allowed for federal purposes. If you have a gross income of $100,000 or more, this lowers or gets rid of the offset allowance.
Additional Resources for Passive activity and losses
Composite returns for nonresidents
A pass-through entity can file a composite return on behalf of qualified electing nonresidents who report and pay income tax on their proportional or distributed share of Massachusetts source income of the pass-through entity. A partnership, S corporation, or a trust or estate can file an electronic composite return on Form MA MRCR and make estimated tax payments as an agent on behalf of 2 or more qualified electing nonresident members.
Eligible members of a composite return must:
- Be an individual or the estate or trust of a deceased nonresident partner
- Be nonresidents for the entire taxable year
- Elect to be included in the composite return by signing a statement
- Agree to be subject to Massachusetts tax jurisdiction, and
- Waive the right to claim deductions, exemptions, and credits allowable under M.G.L Chapter 62, Sections 3, 5 and 6.
Composite returns by professional athletic teams
Any professional athletic team with 2 or more qualified electing nonresident team members can file a composite tax return as an agent for the qualified electing nonresident team members. Each electing non-resident team member must sign, under penalties of perjury, a statement stating their qualifications and election to file a composite return.
File the composite return on Form 1-NR/PY (not Form MA NRCR) along with the applicable schedules and attachments. The total Massachusetts gross income on the composite Form 1 NR/PY must be the sum of all the qualified electing nonresident partners' Massachusetts source income.