Massachusetts Tax Guide 2026

The flat 5% plus the 4% Millionaires' Surtax

Massachusetts moved from a Hawaii-style multi-bracket structure to a flat 5% in 2001 (down from 5.95%, last cut 2020). Voters then added the 4% Millionaires' Surtax in November 2022 via constitutional amendment (Mass. Const. Art. 44 §2), effective tax year 2023. Surtax mechanics: • Applies to ALL types of income above the threshold (wages, LTCG, business income, dividends, retirement distributions) • Threshold $1,000,000 in 2023, inflation-indexed annually — $1,083,150 for 2026 (estimated; verify against DOR Technical Information Release) • Same threshold for single and MFJ — no marriage adjustment • Calculated on Schedule 4 of Form 1 A one-time liquidity event (RSU vesting, business sale) can push a normally-moderate-income MA resident into the 9% bracket for that year. Timing strategies (instalment sales, deferred comp, charitable structuring) matter materially.

Capital gains — short-term at 12%, long-term at 5%

MA is one of the few states that taxes short-term capital gains (assets held one year or less) at a punitive 12% rate (M.G.L. c. 62 §4(b)) — vs the 5% flat rate on ordinary income and LTCG. For a Boston-based active trader, this means quick-flip stock or crypto gains face 12% MA + ordinary federal + NIIT. Collectibles (precious metals, art, coins) taxed at 5% federally LTCG → 5% in MA. Real estate LTCG at 5%. Installment sales locked into multi-year MA filings.

Sales tax — flat statewide

6.25% state rate. No local sales tax — Massachusetts is one of the few states where the rate is uniform statewide. Exemptions: clothing under $175/item, groceries, prescription drugs, most services (legal, medical, accounting). The annual sales tax holiday (statutorily required since 2018) gives a 6.25% exemption on most retail purchases under $2,500 on a weekend in August. Use tax: residents owe 6.25% on out-of-state purchases. Form 1 has a line to self-report. Economic nexus: $100,000 in MA sales (no transaction count; M.G.L. c. 64H §1).

Property tax

Statewide effective average ~1.14% — moderate by Northeast standards. Boston ~0.55% (low because of high commercial assessments funding residential abatements), Cambridge ~0.55%, Newton ~1.05%, Worcester ~1.55%, Springfield ~1.78%. Proposition 2½ (1980 referendum): municipalities can't raise total property tax levy by more than 2.5% per year, AND total levy can't exceed 2.5% of total assessed value. Override votes can lift these caps. Sources are 50%+ of municipal revenue in most MA towns. Senior exemptions: M.G.L. c. 59 §5 Clauses 41A, 41B, 41C for low-income 65+. Disabled vet exemption ($400+).

S-corp minimum excise and PTET

S-corp minimum excise: $456 flat (M.G.L. c. 63 §32, §39) regardless of income or loss. This is the MA-side cost of S-corp election even for tiny entities. MA PTET (Pass-Through Entity Excise, M.G.L. c. 63D, enacted Sept 2021): S-corps and partnerships can elect to pay 5% MA tax at the entity level; owners receive refundable MA credit. Federally deductible — bypassing SALT cap. Election: annual, due with first return for the year. Once elected, irrevocable for that year. Owners' personal returns then claim a refundable PTET credit equal to their distributive share. Millionaires' Surtax interaction: PTET only handles the 5% layer. The 4% surtax must still be paid by individual owners on their personal returns — PTET does NOT cover the surtax on amounts above $1,083,150. High-K-1 partners therefore still owe the 4% personally.

C-corp tax and apportionment

C-corp 'corporate excise' has two components (M.G.L. c. 63 §39): 1. Income excise: 8% on apportioned MA net income 2. Non-income excise: $2.60 per $1,000 of MA-taxable tangible property OR net worth (whichever applicable), minimum $456 Single-sales-factor apportionment for manufacturers, mutual funds, defense contractors; three-factor (double-weighted sales) for most others. Combined reporting required for unitary groups since 2009. R&D credit (M.G.L. c. 63 §38M) at 10% of MA-source increase + 15% of basic research payments.

Self-employed considerations

LLC formation: $500 filing fee (M.G.L. c. 156C) — among the highest in the US. Annual Report: $500 (cash flow burden for small operators). No state-mandated payroll insurance beyond unemployment (UI 0.94%–14.37% on first $15k wage base 2026). Paid Family and Medical Leave (PFML, M.G.L. c. 175M) is 0.88% combined (employee 0.46%, employer 0.42%) on wages up to the Social Security base ($184,500 in 2026). MA does NOT conform to QBI §199A (no state-level 20% deduction). It does conform to bonus depreciation and §179 (mostly).

Worked example: Priya Chen, Boston tech founder selling company stock (single, 2026)

Priya exits her startup in 2026 with $3,000,000 of long-term capital gain on QSBS-qualifying §1202 stock (held 6 years). She also earned $250,000 in W-2 wages that year.

Federal: §1202 fully excludes $3M (within OBBBA's $15M QSBS cap). Federal tax on $3M gain: $0. Federal tax on wages: ~$60,000. Massachusetts: Important: MA does NOT conform to §1202 — the federal exclusion does NOT apply at MA level. Priya owes MA tax on the full $3M LTCG. Total MA income: $3,250,000. 5% on first $1,083,150: $54,158 5% on remaining $2,166,850: $108,343 4% Millionaires' Surtax on amount over $1,083,150 = 4% × $2,166,850 = $86,674 Total MA: ~$249,175 Schedule 4 (surtax form) is required. Takeaway: §1202 QSBS founders should consider establishing residency in a §1202-conforming state (or no-income-tax state) BEFORE the liquidity event. Once the sale occurs, the residency-on-sale-date controls.

Statute references

• Personal income tax — flat 5% — M.G.L. c. 62 §4
• Short-term capital gains 12% — M.G.L. c. 62 §4(b)
• Millionaires' Surtax — Mass. Const. Amend. Art. 44 §2 (eff. 2023)
• Pass-Through Entity Excise (PTET) — M.G.L. c. 63D
• S-corp minimum excise — M.G.L. c. 63 §32, §39
• Proposition 2½ levy limit — M.G.L. c. 59 §21C
• Paid Family and Medical Leave — M.G.L. c. 175M

Related pages

• PTET Analyzer →
• QSBS §1202 Guide →
• State Tax Comparison →