Massachusetts · the return

How Massachusetts income tax works: its own income classes, exemptions instead of a deduction, 5%

A walk through Form 1 from the first line to the last: why the return never looks at federal AGI or federal taxable income, how income is sorted into classes taxed at 5%, 8.5% and 12%, the short list of Massachusetts-only deductions, the personal exemptions that stand in for a standard deduction, the 4% surtax above $1,107,750, the credits, and how the money gets paid in. For anyone who files here.

By Charles Trautman, EA, editor

Need to Know Tax · written from Massachusetts Department of Revenue sources, November 3, 2026; updated November 12, 2026 after the election · not yet reviewed by a Massachusetts practitioner

Massachusetts has taxed income at one rate since 1916, and the rate for 2026 is 5%. But the return is not a copy of the federal one with a flat rate at the bottom. Form 1 does not start from federal adjusted gross income or federal taxable income. It rebuilds income from the federal pieces, wages here, interest and dividends there, gains sorted by holding period, and taxes each class at its own rate: 5% on wages, pensions, business income, interest, dividends and long-term capital gains; 8.5% on short-term capital gains; 12% on collectibles. It allows no standard deduction and no itemizing, ever. In their place are fixed personal exemptions, $4,400 single and $8,800 joint, and a handful of deductions that exist nowhere on the federal return: half of your rent, up to $2,000 of Social Security tax withheld, your transit pass, your charitable gifts without itemizing. Above $1,107,750 of taxable income a 4% surtax turns 5% into 9%. There is no local income tax anywhere in the state.

Because the return is built from scratch, federal changes that happen below the AGI line never arrive. The 2025 federal deductions for tips, overtime, seniors and car-loan interest are not allowed; the Department of Revenue says so in Technical Information Release 26-4 and on its list of federal differences. A tipped worker who owes no federal tax on $8,000 of tips owes Massachusetts $400 on them. The reverse is also true: Massachusetts gives money back in places the federal return does not, and a renter, a commuter, a non-itemizing donor or a family with children under 13 can owe less here than the flat rate suggests.

Who files

A full-year resident files Form 1 when Massachusetts gross income is more than $8,000, regardless of age or filing status. Because Social Security and government pensions are not Massachusetts gross income, a retiree living on those alone may fall under the line even with a sizable federal return. Below $8,000 a return is still worth filing to recover withholding or to collect the refundable credits: the earned income credit, the $440 Child and Family Tax Credit and the Senior Circuit Breaker Credit. Part-year residents and nonresidents file Form 1-NR/PY; a nonresident files when Massachusetts-source income is more than the lesser of $8,000 or the prorated personal exemption. Married couples generally use the status they used federally, except that there is no qualifying widow or widower status; it maps to head of household. Every resident filer attaches Schedule HC, the health insurance schedule, whether or not a penalty is due. Leaving it off delays the refund.

Where it starts: not AGI

Massachusetts gross income is federal gross income as defined by the Internal Revenue Code in effect on January 1, 2024, with Massachusetts additions and subtractions. That fixed date is why the 2025 federal law reaches Massachusetts only where the legislature chooses to follow it, and a 2026 act added a brake: Massachusetts no longer automatically adopts a federal change in the year it is enacted unless the revenue cost is small. The practical result is a return that asks for each kind of income separately rather than for one federal total.

Where income goes on the Massachusetts return, and the rate
Income	Where	Rate
Wages, salaries, tips (W-2 box 16)	Form 1, line 3	5%
Private pensions, annuities, 401(k), 403(b) and IRA distributions above Massachusetts basis	Form 1, line 4; Schedule X for IRAs	5%
Business and farm profit, rental income, unemployment, alimony received, other income	Schedules C, E and X	5%
Interest and dividends (other than Massachusetts bank interest)	Schedule B	5%
Short-term capital gains (held one year or less)	Schedule B	8.5%
Long-term capital gains	Schedule D	5%
Long-term gains on collectibles, after a 50% deduction	Schedule D	12%
Social Security; U.S., Massachusetts and municipal contributory pensions; military retirement	Not reported	0%
Everything above, to the extent taxable income exceeds $1,107,750	Schedule 4% Surtax	+4%

The 4% surtax line is indexed and is the same for every filing status; it was $1,083,150 for 2025. The 8.5% rate on short-term gains has applied since 2023; before that it was 12%.

Three things in that table surprise newcomers. Social Security is simply absent. Government pensions are absent too, while a private pension or 401(k) distribution is taxed in full at 5% with no age break. And a traditional IRA has a Massachusetts basis the federal return does not recognize, because Massachusetts never allowed the contribution deduction; withdrawals are taxable only above the contributions already taxed, on the Schedule X worksheet. All three are worked through in Massachusetts for retirees.

The deductions

Massachusetts has no itemized deductions. Mortgage interest, property tax, state tax and the SALT cap are federal matters only. What it has instead is a short list on Form 1 and Schedule Y, and most of it is unrelated to anything on the federal return, which is why these are the lines most often left blank.

The Massachusetts deductions, 2026
Deduction	Where	Limit
Social Security, Medicare, railroad retirement or U.S./Massachusetts retirement contributions withheld from pay	Form 1, lines 11a and 11b	$2,000 per person, each spouse separately
Rent paid on a Massachusetts principal residence	Form 1, line 14	50% of rent, up to $4,000 ($2,000 married filing separately)
Commuting: MBTA and regional transit fares, E-ZPass MA tolls, commuter boat, bikeshare, bicycles	Schedule Y, line 15	The amount over $150, up to $750 per person
Charitable gifts to 501(c)(3) organizations, no itemizing required	Schedule Y, line 9c	Against 5% income; excess to other classes
Undergraduate student loan interest	Schedule Y, line 12	No dollar cap, no income limit; or the federal $2,500 on line 10, not both
Undergraduate tuition net of aid, residents only	Schedule Y, line 11	The amount over 25% of Massachusetts AGI
Contributions to the MEFA U.Fund 529 or U.Plan	Schedule Y, line 18a	$1,000 single / $2,000 joint
Health savings account and self-employed health insurance, from the federal figures	Schedule Y, lines 8 and 7	Federal amounts
Alimony paid under a pre-2019 agreement	Schedule Y, line 3	Amount paid
Gambling losses at Massachusetts-licensed casinos and tracks	Schedule Y, line 17	Up to winnings from those venues
Contributory pension from another state that does not tax Massachusetts pensions	Schedule Y, line 13	All of it

Not on the list, and never allowed: traditional IRA contributions, the 20% qualified business income deduction, bonus depreciation, and the four 2025 federal below-the-line deductions. Form 1 lines 12 and 13, the old child-care deductions, now read “reserved”; that money moved into the Child and Family Tax Credit.

The $2,000 FICA deduction is the one nearly every wage earner gets, automatically, from W-2 boxes 4 and 6; anyone earning more than about $26,000 hits the cap. A public employee who pays into a Massachusetts retirement system instead deducts those contributions under the same cap. The rent deduction is half the rent on your Massachusetts principal residence, up to $4,000, at any age and income; roommates each deduct half of what they paid, and a parent paying a student’s rent gets nothing. Keep the landlord’s name and address. The charitable deduction has been on Schedule Y since the 2023 return and needs no itemizing; it is worth 5 cents on the dollar under the same substantiation rules the IRS uses.

The exemptions

In place of a standard deduction, Form 1 line 2 allows personal exemptions fixed in statute and not indexed: $4,400 for a single filer or a married person filing separately, $6,800 for head of household, $8,800 for a joint return. Add $1,000 for each dependent, $700 for each taxpayer or spouse who is 65 or over by December 31, 2026 (verify), and $2,200 for legal blindness. The $700 figure is what the Department’s exemptions page and the 2025 instructions say; the draft 2026 Form 1 prints $1,700 on line 2c, and until the final form is out I treat that as a drafting artifact. Two more exemptions borrow federal numbers: the medical and dental amount from Schedule A line 4, if you itemize federally, and fees paid to a licensed adoption agency.

Exemptions come off 5% income first. If they exceed it, which happens to retirees and students whose income is mostly interest, dividends or gains, the excess offsets Schedule B and Schedule D income in a set order. Unused exemptions do not carry forward, and a married person filing separately cannot use the excess. There is no income cliff: the exemptions apply at every income.

No Tax Status and the Limited Income Credit

Low incomes owe nothing. If Massachusetts AGI is $8,000 or less single, $14,400 plus $1,000 per dependent for head of household, or $16,400 plus $1,000 per dependent joint, the tax is zero. Between those lines and $14,000 single, $25,200 plus $1,750 per dependent head of household, or $28,700 plus $1,750 per dependent joint, the Limited Income Credit phases the tax in. Those are the 2025 instruction figures; the statute has not changed them, and the 2026 instructions are to come.

The rate, and the surtax

Five percent of 5% income after deductions and exemptions, plus 5% of interest and dividends, plus 8.5% of short-term gains, plus 5% of long-term gains and 12% of collectibles gains, is the tax before credits. Lottery winnings, unemployment, a Roth conversion and a small-business profit are all 5%. There are no brackets and no local add-on; no city or town may tax income.

The surtax, added to the state constitution by the 2022 Fair Share Amendment, is 4% of taxable income over $1,107,750 for 2026. It applies to the total, not to any one class, so a $900,000 salary plus a $400,000 home-sale gain above the federal exclusion crosses it in a year when neither alone would. The line is the same for a joint return as for a single one, so two spouses earning $700,000 each owe surtax together that neither would owe filing separately. Anyone subject to the surtax must e-file and pay electronically.

Capital losses work by Massachusetts rules. They offset gains without limit, and up to $2,000 of leftover loss offsets interest and dividends, but a loss never offsets wages; the federal $3,000 rule does not exist here. The rest carries forward. See Capital gains for the federal side.

The credits

Massachusetts credits, 2026
Credit	Amount	Notes
Earned Income Credit (Form 1, line 43)	40% of the federal EITC	Refundable; federal eligibility rules
Child and Family Tax Credit (line 46)	$440 per dependent under 13, dependent 65 or over, or disabled dependent or spouse	Refundable; no cap, no income limit; not married filing separately
Senior Circuit Breaker Credit (Schedule CB)	Up to $2,820 for 2025; 2026 to come	Refundable; 65 or over; property tax or 25% of rent over 10% of income; income limits
Limited Income Credit	Phases out the tax at low incomes	Nonrefundable
Income tax paid to another state, territory or Canadian province (Schedule OJC, line 30)	Lesser of the other tax or the Massachusetts tax on the same income	Nonrefundable; not for city taxes
Lead paint removal (Schedule LP), septic repair (Schedule SC), solar and wind (Schedule EC)	Up to $3,000 per unit; Title 5 costs; 15% of cost up to $1,000	Nonrefundable, with carryovers
Pass-through entity excise credit	90% of the owner’s share of the entity-level tax	Refundable

The two refundable family credits are why a Massachusetts return can pay out more than was withheld; a family with two children under 13 collects $880 with no income test at all. The Senior Circuit Breaker is the one most often missed, because the people who qualify usually owe no tax and assume there is no reason to file. See Credits and breaks for Massachusetts families and Massachusetts for retirees.

Worked example: a married couple who rent

Married, both under 65, no children. Wages of $110,000 between them, each earning enough that Social Security and Medicare tax withheld exceeds $2,000. Interest and dividends of $3,000, a $6,000 long-term gain and a $2,000 short-term gain from a brokerage account. Rent of $2,000 a month. One spouse pays $1,200 a year for a monthly MBTA pass; they gave $1,500 to charity and took the federal standard deduction. Massachusetts withholding of $5,500.

Wages (Form 1, line 3)	$110,000
FICA deduction: 2 × $2,000 (lines 11a, 11b)	−$4,000
Rent deduction: 50% of $24,000, capped (line 14)	−$4,000
Schedule Y: charitable $1,500 + commuter ($1,200 − $150, capped at $750)	−$2,250
Exemptions, joint	−$8,800
5% income after exemptions	$90,950
Interest and dividends (Schedule B)	$3,000
Tax at 5% on $93,950	$4,698
Short-term gain $2,000 at 8.5%	$170
Long-term gain $6,000 at 5%	$300
Massachusetts tax	$5,168
Withholding	−$5,500
Refund	$332

The federal standard deduction of $32,200 played no part. The three Massachusetts-only deductions saved $513 of tax and would have been missed by anyone who assumed the state return follows the federal one. Had the $6,000 gain been short-term as well, the tax would rise by $210; the same gain taxed at 0% federally still costs $300 here.

Withholding and estimated payments

Employers withhold a flat 5% of Massachusetts wages after the exemptions claimed on Form M-4, the state’s own certificate, plus 4% on wages over $1,107,750. Claim the personal exemption on one job only. Pension payers use Form M-4P, and a retiree drawing a private pension or IRA should ask for 5% withholding.

Anyone who expects to owe more than $400 after withholding and credits, not the federal $1,000, must make estimated payments on Form 1-ES or through MassTaxConnect, due April 15, June 15 and September 15, 2026 and January 15, 2027. The safe harbor is the lesser of 80% of this year’s tax or 100% of last year’s, not the federal 90%; the penalty is figured on Form M-2210. See Estimated payments.

How to file

The return is due April 15, 2027. MassTaxConnect files Form 1 and Form 1-NR/PY free for any full-year resident, anyone who has filed a Massachusetts return before, and anyone filing only to claim a refundable credit; it also takes payments and shows refund status. E-filed refunds take about four to six weeks, paper eight to ten. The extension is automatic to October 15 with no form if at least 80% of the total tax is paid by April 15; otherwise file Form M-4868 with payment. The extension is to file, not to pay. Paper filers attach Form EFO; surtax filers may not file on paper at all. Dates, forms and links are in Massachusetts calendar and forms.

What trips people up

A private pension or IRA copied at the federal taxable amount, with the Massachusetts basis from years of nondeductible contributions ignored.
A Massachusetts teacher’s, firefighter’s or federal pension left in income. It comes off entirely.
The rent deduction skipped because the federal return never asked about rent.
The federal tips, overtime or senior deduction expected to reduce Massachusetts tax. None of them reach Form 1.
Short-term gains taxed at 5%. The Department’s computers match Schedule B to the 1099-B.
Capital losses netted against wages the way the federal $3,000 rule allows.
Schedule HC omitted, which holds the refund.
Estimated payments skipped because the balance due was under $1,000. The Massachusetts trigger is $400.

Behind the scenes: why the return is built this way

Massachusetts adopted its income tax in 1916, before the federal standard deduction existed, and wrote the return around classes of income rather than around a single total. The constitution still requires that income of the same class be taxed at a uniform rate, which is why there are no brackets and why the voters had to amend the constitution in 2022 to add the 4% surtax. For most of this century the state defined income by the federal Code as it stood on January 1, 2005, which is how it came to skip the IRA deduction, bonus depreciation and a generation of federal changes; the date now stands at January 1, 2024, and the June 2026 supplemental budget added the rule that new federal changes do not arrive automatically. The result is a return with a short memory for federal law and a long one for its own: the $2,000 FICA deduction, the rent deduction and the fixed $4,400 exemption have been on Form 1, unindexed, for many years.

What to bring

Every W-2 (boxes 4, 6, 14 and 16 matter here), 1099-R, 1099-INT, 1099-DIV and 1099-B, with gains sorted short-term and long-term
Rent paid in 2026 and the landlord’s name and address
MBTA, commuter rail, commuter boat, E-ZPass MA and bikeshare costs, net of employer reimbursement
Charitable receipts, whether or not you itemize federally
Undergraduate student loan interest statements and MEFA U.Fund or U.Plan contributions
For a traditional IRA: the history of contributions, to establish Massachusetts basis
Health insurance Form 1099-HC from your insurer, for Schedule HC
Massachusetts estimated payments made, with dates; any letter from the Department

Questions people ask

Does Massachusetts have a standard deduction?

No, and no itemizing either. The personal exemption, $4,400 single, $6,800 head of household or $8,800 joint, plus $1,000 per dependent and $700 at 65, is the only general allowance, and it applies at every income.

Is the tax really flat?

For most people, yes: 5% on everything after exemptions. The exceptions are short-term capital gains at 8.5%, collectibles at 12%, and the 4% surtax on taxable income over $1,107,750, which makes the rate 9% above that line.

I don’t owe federal tax on my overtime anymore. Why do I owe Massachusetts?

Because the federal overtime deduction comes off below the federal AGI line, and Massachusetts never uses that line. Your full wages from W-2 box 16 go on Form 1 line 3, and nothing takes the overtime back out. The same is true of tips, the $6,000 senior deduction and car-loan interest.

Can I deduct my mortgage interest or property tax?

No. Massachusetts has no itemized deductions. Property tax earns nothing on Form 1 unless you are 65 or over and qualify for the Senior Circuit Breaker Credit on Schedule CB.

Is there a city income tax in Boston?

No. No Massachusetts city or town taxes income. The 5% is the only rate, and the only local tax you pay is property tax.

I took a $20,000 loss in the market. Does it reduce my Massachusetts tax?

Only against gains, and up to $2,000 against interest and dividends. It never reduces the tax on your wages. The unused loss carries forward to future gains.

Build the return; do not copy it

Sort the income into its classes, take the deductions the federal return never asked about, claim the exemptions, and remember that nothing below the federal AGI line ever arrives.

Written by Charles Trautman, EA, editor  ·  Need to Know Tax, Lone Tree, Colorado
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Updated November 12, 2026, after the November 3 election · tax year 2026 figures · awaiting review by a Massachusetts practitioner — use the right article