Massachusetts for retirees: Social Security and public pensions untaxed, private pensions and IRAs at 5%, and the circuit breaker

Massachusetts draws one line through retirement income, and it is not the line most people expect. Social Security is not Massachusetts income at any age or any amount; it is not reported on Form 1 at all. Pensions from the U.S. government, from Massachusetts and its cities and towns, and from the uniformed services are not Massachusetts income either. But a private pension, a 401(k) or 403(b) distribution and the taxable part of a traditional IRA withdrawal are taxed at the full 5%, with no age test, no exclusion and no cap. A retired teacher with a $60,000 state pension owes nothing on it; a retired engineer with a $60,000 corporate pension owes $3,000. What softens the engineer’s bill is a Massachusetts basis in the IRA that the federal return does not recognize, a $700 exemption at 65, and, for homeowners and renters with modest income, a refundable credit of up to $2,820 (the 2025 figure) that is paid whether or not any tax is due.

The federal return gives seniors an extra standard deduction and, for 2025 through 2028, a $6,000 senior deduction. Neither reaches Massachusetts. Form 1 does not start from federal taxable income, so a deduction taken below the federal AGI line has nowhere to land, and the Department of Revenue lists the senior deduction among the federal items not allowed. The Massachusetts breaks for age are its own, and they are what this article is about.

What is taxed and what is not

A pension of a senior U.S. judge is taxable because it is noncontributory; the uniformed services are the one noncontributory exception. The Department keeps a list of which states reciprocate on public pensions.

The government pension rule turns on who the employer was. A Massachusetts public employee who paid into the state or a municipal retirement system takes the whole pension off; so does a federal retiree under CSRS or FERS. A pension from a private hospital, a private university or a nonprofit is a private pension, taxed at 5% in full. Other states’ pensions are the trap for people who retire here: a public pension from a former state comes off on Schedule Y line 13 only if that state would exempt a Massachusetts public pension for its residents, or has no income tax. Ask before assuming.

The IRA has a Massachusetts basis

This is the item preparers from other states miss most often. Massachusetts has never allowed a deduction for a traditional IRA contribution. Every dollar you contributed over the years was taxed by Massachusetts in the year you earned it, even in years the IRS let you deduct it. So when the money comes out, Massachusetts taxes only the part that was never taxed before: the earnings, plus any amounts rolled in from a 401(k) or other employer plan, whose contributions were excluded from Massachusetts wages at the time. The worksheet on Schedule X line 2 recovers the previously taxed contributions first. Withdrawals are tax-free in Massachusetts until the total of all your Massachusetts-taxed contributions has come back out, and only then does the 5% begin.

The Massachusetts basis is therefore usually larger than the federal basis on Form 8606, and for someone who funded an IRA for twenty years it can be most of the account. The record you need is the history of contributions, which the custodian may not have; Form 5498s, old returns and bank statements all work. A 401(k) rolled into the IRA adds nothing to the basis.

Roth conversions

A Roth conversion is a taxable IRA distribution, and Massachusetts taxes it at 5% above the Massachusetts basis. A $100,000 conversion from an IRA that was built entirely from a 401(k) rollover costs $5,000 of state tax on top of the federal bill. A $100,000 conversion from an IRA built from years of contributions that were taxed here may cost far less, because the basis comes out first. The backdoor Roth, a nondeductible contribution converted right away, is clean here: the contribution was after-tax in both systems and the Massachusetts basis tracks it.

Two Massachusetts-specific costs to watch. A large conversion can push the year’s taxable income over the $1,107,750 surtax line and cost 9% on the excess. And a conversion raises Massachusetts income for the Senior Circuit Breaker test, which can cost the whole credit in the year it is done. Qualified Roth withdrawals later are not Massachusetts income. The federal side, IRMAA and the taxation of Social Security, is in Roth IRAs and the backdoor Roth and IRMAA.

The exemptions at 65

Each taxpayer or spouse who is 65 or over by December 31, 2026 adds $700 to the personal exemption (verify), worth $35 of tax; a joint return with both spouses over 65 claims $8,800 plus $1,400. The Department’s exemptions page, updated October 30, 2026, and the 2025 instructions both say $700. The draft 2026 Form 1 prints $1,700 on line 2c, which I treat as a drafting artifact until the final form is out. If you itemize federally, the medical and dental amount on Schedule A line 4, expenses over 7.5% of federal AGI, becomes a Massachusetts exemption on line 2e; if you take the federal standard deduction there is no Massachusetts medical break at all, so a retiree with large medical bills should run the federal itemizing comparison with the 5% Massachusetts saving added in. Legal blindness adds $2,200.

When exemptions exceed 5% income, the excess offsets interest, dividends and capital gains in a set order. A couple whose only taxable income is a $9,000 private pension and $6,000 of dividends uses the full $10,200 of exemptions: $9,000 against the pension and $1,200 against the dividends, leaving $4,800 taxed at 5%, $240. Unused exemptions do not carry forward.

The Senior Circuit Breaker Credit

This is the Massachusetts break that matters most to a retiree of ordinary means, and the one most often unclaimed. If you are 65 or over by December 31 and own or rent your principal residence in Massachusetts, you can claim a refundable credit for the amount by which your property tax, plus half of your water and sewer bills, exceeds 10% of your total Massachusetts income. Renters use 25% of rent in place of the property tax. The maximum credit for 2025 is $2,820; the 2026 maximum, income limits and home-value cap are to come from the Department by Technical Information Release late in the year, and the draft 2026 Schedule CB still shows the 2025 numbers.

Not eligible: married filing separately, nonresidents, dependents of another taxpayer, renters receiving a federal or state rent subsidy or renting from a tax-exempt landlord, and homes assessed above the cap.

“Total Massachusetts income” for this credit is wider than the taxable income on Form 1. Schedule CB adds back the Social Security, the exempt government pension and other receipts the return leaves out, so a couple with $40,000 of Social Security and a $30,000 state pension has $70,000 of income for the test even though Form 1 shows none of it. The credit is refundable: a couple who owe no Massachusetts tax can still receive the full $2,820, but only by filing Form 1 with Schedule CB. If you qualified in a past year and did not file, you can still file Schedule CB for any year within three years of its due date.

Relief from the town, outside the return

Property tax in Massachusetts is set and billed by each city and town, and the local exemptions are applied for at the assessors’ office, not on Form 1. The main ones, under chapter 59, section 5 of the General Laws, are local options whose amounts vary town to town (verify locally): the Clause 41C senior exemption for owners 65 or 70 and over under income and asset limits, typically $500 to $1,000 (verify); the Clause 17D exemption for seniors over 70, surviving spouses and minor children; the Clause 41A deferral, which lets an owner 65 or over with income under a local limit postpone the tax at interest until the house is sold, up to half its value; veterans’ and blind exemptions; and senior work-off programs in participating towns. Boston, Cambridge and about a fifth of municipalities also grant a residential exemption for owner-occupied homes. The Senior Circuit Breaker is figured on the tax actually paid after local exemptions, so the two interact.

Withholding and estimated payments

Nothing is withheld or owed on Social Security or an exempt government pension. Private pension payers and IRA custodians will withhold 5% for Massachusetts if asked on Form M-4P; many do not by default. A retiree whose Massachusetts tax after withholding will exceed $400 must make estimated payments on the four federal dates or owe a penalty on Form M-2210; the safe harbor is the lesser of 80% of this year’s tax or 100% of last year’s. The year of a Roth conversion or a large stock sale is the year to check.

Moving in, moving out

Federal law bars a state from taxing the retirement income of someone who no longer lives there, so a private pension paid to a new Massachusetts resident is Massachusetts income at 5% from the day of the move, and a Massachusetts resident who retires elsewhere stops owing Massachusetts tax on pension and IRA income the same day. In the year of the move, Form 1-NR/PY reports the payments received while a resident, with the exemptions prorated by days. A retiree who keeps a Massachusetts home and spends more than 183 days a year here is a Massachusetts resident whatever the driver’s license says. See Moving to Massachusetts.

The estate tax

Massachusetts has no inheritance tax and no gift tax, but it has an estate tax that begins at $2,000,000, far below the federal line, and a house in the Boston area plus a retirement account gets an ordinary couple there. A credit of $99,600 eliminates the tax on estates of $2 million or less and reduces it above that line, so only the excess over $2 million is effectively taxed, at graduated rates up to 16%. The threshold is not indexed, and there is no portability between spouses: a couple with a $3.5 million estate keeps both exemptions only with a trust or other planning. Since September 2024, real estate and tangible property outside Massachusetts are left out of a resident’s taxable estate. The return is Form M-706, filed with the Department within nine months of death; smaller estates record an affidavit to clear the lien on real estate. This is the most under-planned item for middle-class Massachusetts families, and it belongs on the agenda with a Massachusetts attorney. See Gift and estate taxes.