Massachusetts Business Taxes at a Glance
Massachusetts taxes most income at a single rate, but high earners, investors, and business owners face several extra layers: a separate rate on short-term capital gains, a surtax on large incomes, and a corporate excise with more than one measure. Employers have their own requirements, including paid family and medical leave contributions and health coverage reporting. BOMCAS helps Massachusetts individuals and businesses plan for these rules and file correctly.
Personal Income Tax and the Surtax
Massachusetts taxes most income, such as wages, interest, dividends, and long-term capital gains, at one flat rate. Short-term capital gains and certain collectibles gains are taxed at a higher rate. Massachusetts starts from its own definitions rather than federal adjusted gross income in several areas, so the state return does not always match the federal one.
Since 2023, Massachusetts has imposed an additional 4% surtax on taxable income above a threshold of about $1 million, adjusted each year for inflation. A single large event, such as selling a business, exercising stock options, or selling a home with a large gain, can push income above the threshold for one year. Spreading income across years, using installment sales, and timing equity transactions can change the result. We model the surtax before major transactions and prepare the returns that follow.
Residents, Part-Year Residents, and Commuters
Residents pay tax on all income. Nonresidents pay tax on Massachusetts-source income, such as wages for days worked in Massachusetts and income from Massachusetts property or businesses. Many people who live in New Hampshire, Rhode Island, or Connecticut work in Massachusetts, and remote work makes allocation of days a frequent question. Massachusetts also uses a statutory resident test for people who keep a home in the state and spend significant time there. We prepare nonresident and part-year returns and review day allocations.
Health Coverage Requirement
Massachusetts requires most adult residents to have health insurance that meets state standards. Residents report coverage on their state return, and a penalty can apply for months without qualifying coverage if they could afford it. Employers send coverage statements to employees and report certain information to the state. We include health coverage reporting in individual returns and payroll year-end work.
Corporate Excise
Massachusetts taxes corporations through a corporate excise with two parts: a tax on income apportioned to Massachusetts and a tax on either tangible property or net worth, depending on the type of corporation. There is a minimum excise. Combined reporting applies to unitary groups.
S corporations generally pass income through to shareholders, but S corporations with total receipts above a set level also pay an entity-level tax on income. Massachusetts also has an elective pass-through entity excise; whether it is available for a given year depends on current law. We prepare corporate and S corporation returns and evaluate entity-level elections.
Sales, Meals, and Room Occupancy Taxes
Massachusetts has a statewide sales and use tax with no general local sales tax. Most clothing below a price threshold and most groceries are exempt. Cities and towns may add a local meals tax on restaurant food, and the state and many communities levy room occupancy taxes on hotels and short-term rentals. Short-term rental operators must register with the Department of Revenue.
Restaurants, hotels, and short-term rental owners on the Cape and Islands and in Boston deal with several taxes on each transaction. We help register, prepare returns, and reconcile tax collected to the books.
Payroll: PFML and Employer Requirements
Massachusetts payroll includes:
- State income tax withholding
- Paid Family and Medical Leave contributions, shared between employers and employees, with smaller employers exempt from the employer share
- Unemployment insurance and the Workforce Training Fund contribution
- Employer Medical Assistance Contribution, an employer assessment tied to unemployment wages, with an additional amount in some cases when employees get state-subsidized coverage
These are reported to different agencies on different schedules. We set up payroll, file the quarterly reports, and reconcile contributions to the general ledger.
Estate Tax
Massachusetts has its own estate tax, with an exemption amount far below the federal one. Legislation in 2023 raised the exemption and changed how it works, so estates just over the threshold are no longer taxed on the entire amount. Estates below the federal exemption can still owe Massachusetts tax. We help executors prepare estate accounting records and the decedent's final income tax returns, working with estate counsel.
Biotech, Startups, Universities, and Hospitality
- Life sciences and biotechnology: research credits, equity compensation, and multistate apportionment
- Technology and startups: stock option exercises, the surtax, and qualified small business stock planning with advisers
- Higher education and nonprofit-adjacent businesses: fund accounting support and payroll
- Professional services and finance: partner income, the surtax, and entity-level excise
- Hospitality and tourism: meals and room occupancy taxes and seasonal payroll
Bookkeeping for Massachusetts Requirements
Massachusetts books should track receipts for the S corporation entity-level tax, payroll by employee location for withholding and PFML, and taxable meals and lodging separately. We set up the chart of accounts and monthly close to give these figures when they are needed.
Work With BOMCAS in Massachusetts
Founders planning a liquidity event, commuters from New Hampshire and Rhode Island, and employers balancing PFML and health reporting can contact BOMCAS for a remote review before key deadlines. Over time, this section will hold pages for specific Massachusetts cities and services. See the BOMCAS home page and our United States services for more. This page is general information and not advice on your situation.
Talk to BOMCAS About Your Massachusetts Taxes
Have a question about your Massachusetts filings, payroll or bookkeeping? Contact BOMCAS or use the contact form below, and we will get back to you as soon as possible. You can also browse all United States services.