Tax Rates

Learn about the tax rates that are applied to individual and business taxpayers.

Overview

The personal income tax rates apply to the following taxpayers:

  • Residents who are taxed on their taxable income
  • Nonresidents who are taxed to the extent specified in Massachusetts General Law chapter 62, section 5A on their taxable income
  • Estates and trusts that are taxed to the extent specified in sections 9 through 16.
     

For the tax year 2016, the rates on taxable income are as follows:

  • Capital gains reported on Massachusetts Schedule B is 12%.
  • Gains included are:
    • Current year short-term capital gains (including collectibles);
    • Long-term capital gains on collectibles and pre-1996 installment sales; and
    • Gains on the sale of property used in a trade or business (4797 property) held for one year or less.
       
  • Interest and dividends reported on Massachusetts Schedule B is 5.1%.
  • Interest income excluded from Schedule B because it is reported on Form 1 or Form 1-NR/PY is:
    • Interest from savings deposits in Massachusetts banks; and
    • Interest from loans made by pawnbrokers.

Unlike Massachusetts bank interest where $100 or $200 may be excluded, the entire amount of Schedule B interest is subject to tax.

  • Form 1, Line 10 or 1-NR/PY, Line 12 income, which is Massachusetts gross income:
    • Wages
    • Salaries
    • Tips
    • Taxable pensions
    • Self-employment and
    • Rental income, etc.

 that are not included in Schedule B or Schedule D income is 5.1%.

  • Interest income included in Form 1, Line 10 or 1-NR/PY, Line 12 is:
  • Interest from savings deposits in Massachusetts banks; and
  • Interest from loans made by pawnbrokers.
     
  • Long-term capital gains reported on Massachusetts Schedule D is 5.1%.
  • Capital Gains excluded from Schedule D because they are reported on Schedule B are:
     
    • Long-term capital gains from collectibles and
    • Long-term capital gains from pre-1996 installment sales.
       
  • Capital gains excluded from Schedule D because they are reported on Schedule D-IS are:
     
    • Long-term capital gains from installment sales occurring between January 1, 1996, and December 31, 2002
    • Long-term capital gains reported on Massachusetts Schedule D-IS from installment sales occurring between January 1, 1996, and December 31, 2002, is the rate that was applicable when it was sold.

Qualifying Small Business Stock

Effective for tax years beginning on or after January 1, 2011:

In order to qualify for the lower rate, investments must have been made within 5 years of the corporation’s date of incorporation and must be in stock that generally satisfies the definition of “qualified small business stock” under IRC section 1202(c), without regard to the requirement that the corporation be a C corporation.

In addition, the stock must be held for 3 years or more and the investments must be in a corporation that:

  • Is domiciled in Massachusetts;
  • Is incorporated on or after January 1, 2011;
  • Has less than $50 million in assets at the time of investment; and
  • Complies with certain of the “active business requirements” of section 1202 of the Code, i.e., sections 1202(e)(1), (e)(2), (e)(5), and (e)(6).

As a result of the required holding period of 3 years or more for small business stock, tax year 2014 is the first year that the 3% rate was operative.

Tax Rate on Long-Term Capital Gains Beginning

For tax years beginning on or after January 1, 2003, the Massachusetts tax rate on Schedule D long-term capital gains is:

  • The same rate provided for on Form 1, Line 10 or 1-NR/PY, Line 12 income.
  • For 2016, the rate is 5.1%.

Optional Tax Rate of 5.85%

Taxpayers have the option to pay a higher tax rate on certain types of income. Taxpayers may pay 5.85% as opposed to 5.1% on the following types of income:

  • Form 1 or 1-NR/PY income after exemptions:
    • Form 1, Line 19 or
    • 1-NR/PY, Line 23.
  • Schedule B interest and dividend income:
    • Form 1, Line 20 or
    • 1-NR/PY, Line 24.
  • Schedule D net long-term capital gains: -
    • Schedule D, Line 20.

Choosing to pay tax at the rate of 5.85% doesn’t apply to items of income taxed at 12%:

  • Short-term capital gains and
  • Gains on collectibles and pre-1996 installment sales.

Allocation of the 5.1% and 12% Tax Rates for Taxable Schedule B Income

Schedule B taxable income will be taxed at the rate of 5.1% to the extent it does not:

  • Exceed Schedule B interest and dividends, and
  • Is calculated before any deductions or exemptions are applied.

Any remaining taxable income (i.e., any portion that exceeds Schedule B interest and dividends), will be taxed at the rate of 12%.

  • In effect, Schedule B deductions and exemptions are:
  • First allocated to 12% income and then,
  • If any deductions or exemptions remain, to 5.12% income.

Tax Rate Remains the Same for 2017

The Massachusetts personal income tax rate will remain at 5.1% in 2017 because Massachusetts failed to meet certain economic benchmarks set by the Legislature in 2002. The benchmarks are based on growth in tax revenues.

To meet the benchmarks, the tax revenue collected by Massachusetts would have had to increase by 2.5% year after year, adjusted for inflation.

Between fiscal years 2015 and 2016:

  • The growth in tax revenue was less than 1%, and
  • A reduction in the tax rate will not occur for the tax year 2017.

Additional Information

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