Massachusetts Tax Guide: What You’ll Pay in 2023

En español | Though the Bay State will charge a surtax for income over $1 million starting with tax year 2023, for now its flat income tax rate of 5 percent puts it in the lower half of the 50 states. The average property tax rate and the sales tax fall in the middle of the pack across all states. 

Massachusetts has numerous tax benefits for older residents, including a 65-or-over exemption, a Senior Circuit Breaker tax credit, an opportunity in some cities and towns to volunteer in exchange for a property tax bill reduction and a $1 million estate tax exemption.

• Income tax: 5 percent
  Massachusetts has a flat income tax rate of 5 percent. However, this will change next tax season when the Bay State will tax income over $1 million at the rate of 9 percent. 

• Property tax: 1.14 percent of a home’s assessed value (average)
  Real estate taxes vary by county and town across Massachusetts, with an average tax rate of 1.14 percent of a home’s assessed value in 2021, according to the Tax Foundation. 

• Sales tax: 6.25 percent (state only)
  A state sales tax rate of 6.25 percent is levied on the sale, rental or use of tangible personal property (such as furniture, appliances, books, handbags, etc.) and telecommunications services. There are no local sales taxes.

Massachusetts currently has a flat income tax of 5 percent. However, in November 2022, Bay State voters approved an additional 4 percent tax on annual income above $1 million, beginning in tax year 2023. Starting next tax season, annual income above $1 million will be taxed at 9 percent.

A personal income tax exemption allows a portion of Massachusetts filers’ salary to be deducted from the income tax they owe.

Source: Massachusetts Department of Revenue

Check for additional tax exemptions, including those for nonresidents and part-year residents, legal blindness and medical and dental expenses.

Some low-income Massachusetts residents are not required to pay state income taxes (they qualify for No Tax Status). If you meet the criteria below, you may qualify for No Tax Status.

Source: Massachusetts Department of Revenue

If your income is a little too high to qualify for No Tax Status, you may qualify for the Limited Income Credit, which can lower your tax burden. See criteria below:

Source: Massachusetts Department of Revenue and DOR Tax Tips for Seniors and Retirees
 
Learn more about No Tax Status and the Limited Income Credit.

Watch the video below to learn how to identify your 2022 federal income tax brackets.

Money withdrawn from most private pensions and retirement accounts, including 401(k)s and traditional IRAs, is considered taxable income. However, IRA contributions that were previously taxed by the state may be distributed tax-free, according to the Massachusetts Department of Revenue.

Most government pensions, including U.S. military pensions, are not taxed in Massachusetts. Some exceptions include federal employee Thrift Savings Plan distributions and senior U.S. judges’ pension distributions, which are taxable.

Distributions from 403(b) plans are tax-exempt if you’ve already paid Massachusetts tax on contributions.

If you’ve moved to Massachusetts and receive government pension payments from your prior state, that income is tax-exempt if your prior state doesn’t tax its residents on income they receive from Massachusetts. Check the Massachusetts Form 1-NR/PY to learn more.

AARP’s Retirement Calculator can help you determine if you are saving enough to retire when — and how — you want.

Long-term capital gains from investments are taxed at 5 percent in Massachusetts, and short-term capital gains are taxed at 12 percent. A long-term capital gain is a profit from selling an asset you’ve owned for more than one year. A short-term capital gain is a profit from the sale of an asset you’ve owned for one year or less.

No. But you may pay federal taxes on a portion of your Social Security benefits, depending on your income. Up to 50 percent of your benefits will be taxed if you file an individual tax return and make $25,000 to $34,000 in total income — or if you file jointly and as a couple make $32,000 to $44,000 in total income. Up to 85 percent of your benefits will be taxed by the federal government if your total income is more than $34,000 individually or $44,000 as a couple.

AARP’s Social Security Calculator can assist you in determining when to claim and how to maximize your Social Security benefits.

Property tax rates are based on home values and vary by location. The average property tax rate in Massachusetts is 1.14 percent, according to the Tax Foundation.

Learn more about property tax in Massachusetts. People who are blind, seniors, surviving spouses and veterans, as well as anyone who claims the Bay State as their primary residence,  may qualify for local property tax exemptions. Personal property such as cars and boats are typically taxed locally through excise taxes.

• Sales tax: The state collects a 6.25 percent tax on the sale or rental of many goods, such as books, appliances and furniture, as well as on some telecommunications services.

• Use tax: Massachusetts use tax is 6.25 percent of the sale or rental price of goods and certain telecommunications services on which no sales tax was paid and which will be used in the state. This includes items bought in person, online and over the phone. For example, if you bought a desk from a business in another state and paid a sales tax of less than 6.25 percent, you’ll owe a use tax to Massachusetts to cover the difference between the sales tax you paid and the Bay State’s 6.25 percent sales tax. 

• Exemptions: Groceries, clothing up to $175, newspapers, magazines, certain health care and household items, event tickets, shipping services, personal and professional services, and sales of gas, steam, electricity and heating fuel to residential properties are not taxed. View a list of taxed and tax-exempt items and services.

• Gas and diesel: Massachusetts consumers pay a 24-cents-per-gallon state excise tax on gas and diesel fuel. The excise tax is included in the price at the pump. (Gas and diesel fuel are not subject to the state’s sales tax.)

• Alcohol: Alcohol tax rates range from 3 cents to $4.05 per gallon, depending on the type of beverage and percentage of alcohol. Beer is taxed at $3.30 per barrel (31 gallons), or roughly 11 cents per gallon. Wine is taxed at 55 cents per gallon, and liquor is taxed at $4.05 per gallon. These excise taxes are paid by the vendor, but some or all may be included in the retail price. Alcoholic beverages are exempt from sales tax, unless they’re sold as part of a meal.

• Lottery: Massachusetts state lottery winnings (as well as from lotteries outside the Bay State) must be included in Massachusetts gross income. Winnings greater than $5,000 are also subject to federal tax.

• View the full list of Massachusetts sales and excise tax rates.

In the Bay State, estates are taxed at rates ranging from 0.8 percent to 16 percent, depending on the value of the estate. The first $1 million of an estate is exempt.

Residents who turned 65 before Jan. 1, 2023, can receive a $700 exemption on top of the state’s personal exemptions. This is per person (not household), so if your  spouse turned 65 by Jan. 1, they can also claim the exemption.  

If you are 65 or older before Jan. 1, 2023, you may be eligible for the Senior Circuit Breaker tax credit, depending on the taxes or rent you paid on your principal residence. The maximum credit is $1,200. Learn more, including how to apply.

Those older than 60 may be able to take advantage of a Senior Citizen Property Tax Work-Off Abatement, in which taxpayers volunteer with their city or town for a property tax bill reduction of up to $1,500 per year. View details for Boston residents. Contact your city or town to see if they participate.

View tax tips for seniors and retirees in Massachusetts.

Massachusetts does not tax U.S. military pensions. Veterans Administration disability compensation is also not taxed in the state.

Spouses of military personnel may be eligible for exemptions.

The deadline to file a Massachusetts state tax return is April 18, 2023, which is also the deadline for federal tax returns. For help estimating your annual income taxes, use AARP’s Tax Calculator.

Personal income tax extensions should also be filed by the April 18, 2023, deadline. Extensions provide additional time to file (until Oct. 16, 2023) — not additional time to pay taxes owed. Massachusetts requires its own form for extensions, which can be completed electronically or by mail. Learn more about filing an extension, as well as penalties and interest.

This guide was first published on March 16, 2023.

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Michelle Cerulli McAdams is a contributing state news writer for the AARP Bulletin. She works for the nonprofit news website The Conversation U.S. and previously worked in higher-education and health-care communications. She has written for The Boston Globe, Austin American-Statesman and other publications.