Massachusetts Withholding Tax

Massachusetts withholding tax is a crucial aspect of tax compliance for employers operating within the state. As an employer in Massachusetts, it is your responsibility to withhold state income tax from your employees’ wages and remit these taxes to the Massachusetts Department of Revenue (DOR). This withholding ensures that employees meet their state tax obligations, reducing the likelihood of underpayment when they file their annual income tax returns. Failure to correctly withhold and remit taxes can result in significant penalties and interest charges. In this comprehensive guide, we will explore everything you need to know about Massachusetts withholding tax, including how it works, who must comply, the rates and thresholds, how to file, and important deadlines.

What is Massachusetts Withholding Tax?

Massachusetts withholding tax refers to the state income tax that employers are required to withhold from their employees’ wages. This tax is based on the employee’s income and is intended to prepay their state income tax liability. The amount withheld depends on the employee’s earnings, the number of allowances they claim on their Massachusetts Employee’s Withholding Exemption Certificate (Form M-4), and the applicable state tax rates.

Employers are required to withhold this tax from each paycheck and remit it to the Massachusetts Department of Revenue on a regular basis. The withholding tax serves as a prepayment of the employee’s income tax, which is reconciled when the employee files their annual tax return. The employer acts as a tax collector for the state, ensuring that taxes are paid in a timely manner throughout the year.

Who is Required to Withhold Massachusetts State Income Tax?

Any employer who pays wages to employees working in Massachusetts is required to withhold Massachusetts state income tax. This includes:

• Corporations
• Partnerships
• Limited Liability Companies (LLCs)
• Sole Proprietorships
• Nonprofits

Even if your business is located outside of Massachusetts, if you have employees who work within the state, you are still required to withhold Massachusetts state income tax. This applies whether the employees are full-time, part-time, or seasonal.

Additionally, employers are also responsible for withholding Massachusetts state income tax from certain non-wage payments, such as pensions, annuities, and other similar types of income, if the recipient is a Massachusetts resident or if the income is taxable in Massachusetts.

Massachusetts Withholding Tax Rates and Thresholds

The amount of Massachusetts withholding tax that must be withheld from an employee’s wages depends on several factors, including the employee’s income, the number of withholding allowances they claim on Form M-4, and the state’s tax rates.

For the tax year 2025, the Massachusetts state income tax rate is 5% of an employee’s taxable income. The amount to be withheld is calculated by applying this rate to the employee’s income after considering any allowances claimed. Employers must use the Massachusetts Withholding Tables or an approved payroll system to determine the correct amount of tax to withhold.

Employers are also required to withhold an additional 0.63% for Paid Family and Medical Leave (PFML) contributions, which are part of the Massachusetts Family and Medical Leave program.

How to File and Pay Massachusetts Withholding Tax?

Employers must register with the Massachusetts Department of Revenue (DOR) to obtain a withholding tax account number before they can begin withholding taxes. The registration process can be completed online through MassTaxConnect, the state’s online tax system.

Once registered, employers must file withholding tax returns and remit the withheld taxes to the DOR on a regular basis. The frequency of filing and payment depends on the total amount of tax withheld:

• Monthly Filers: Employers who withhold less than $1,200 in a calendar year must file and pay monthly. Returns and payments are due on the 15th day of the following month.
• Quarterly Filers: Employers who withhold between $1,200 and $25,000 annually must file and pay quarterly. Returns and payments are due on the 15th day of the month following the end of each quarter.
• Semi-weekly Filers: Employers who withhold $25,000 or more annually must file and pay semi-weekly. Payments are due within three business days of the payroll date, and returns are filed monthly.

Employers are required to file their withholding tax returns and remit payments electronically through MassTaxConnect. The system allows for convenient and secure filing, payment, and record-keeping.

Penalties for Filing Massachusetts Withholding Tax Late

Employers who fail to file their withholding tax returns or pay the withheld taxes on time may be subject to penalties and interest charges. The penalty for late filing is typically 1% of the tax due per month, up to a maximum of 25%. Additionally, interest is charged on any unpaid taxes at a rate set by the Massachusetts Department of Revenue, which is updated quarterly.

To avoid penalties, employers should ensure that they file and pay their withholding taxes on time. If an employer is unable to file or pay on time due to extenuating circumstances, they should contact the DOR to discuss their options.

How to Adjust Withholding?

Employees who experience a change in their financial situation, such as getting married, having a child, or receiving a significant pay increase, may need to adjust their withholding to avoid underpayment or overpayment of taxes. Employees can adjust their withholding by completing a new Form M-4 and submitting it to their employer. The employer should update their payroll records accordingly to reflect the new withholding amount.

Employers should encourage their employees to review their withholding at least once a year or whenever a significant life event occurs. This can help ensure that the correct amount of tax is withheld and reduce the risk of an unexpected tax bill at the end of the year.

For more detailed information on Massachusetts withholding tax, employers can visit the Massachusetts Department of Revenue’s website. The site provides access to important resources, including the Massachusetts Withholding Tables, Form M-4, and MassTaxConnect.

Employers can also contact the Massachusetts Department of Revenue directly for assistance with specific questions or issues related to withholding tax. The DOR offers a variety of support services, including phone support, email support, and in-person assistance.