Does Massachusetts Have a State Income Tax? A Financial Guide for Residents and Retirees
When planning your financial future or considering a move, state taxes play a major role—especially for retirees, remote workers, and high-income earners. If you’re wondering whether Massachusetts has a state income tax, how it compares to tax-free states, and what it means for your wallet, this guide breaks it all down.
Introduction
Massachusetts imposes a flat 5% income tax on most types of personal income, from wages and salaries to investment income and retirement distributions. While this flat rate is lower than some progressive tax systems in other states, the overall tax environment in Massachusetts can still feel burdensome—particularly when you factor in relatively high property taxes, a 6.25% state sales tax, and other excise taxes.
In this article, we’ll dive into:
Who is required to pay Massachusetts state income tax and what income types are taxable
How retirees are taxed in Massachusetts, including which retirement incomes are exempt and which are not
Which U.S. states have no state income tax and how they make up the difference in revenue
How Massachusetts compares to the most tax-friendly states, especially for retirees and remote workers
What it means to live in Massachusetts financially, including the total cost of living and how it stacks up against lower-tax states
Do I Have to Pay Massachusetts State Income Tax?
Yes. Massachusetts imposes a flat state income tax rate of 5% on most types of personal income. Unlike states with tiered or progressive tax brackets, Massachusetts applies the same rate to everyone—regardless of income level. This means that whether you're a salaried employee, a self-employed freelancer, or earning passive income from investments, you are likely subject to this tax.
What Types of Income Are Taxable in Massachusetts?
Massachusetts taxes most forms of income, including:
Wages, Salaries, and Tips: If you earn a paycheck, your income is subject to the 5% state income tax rate. Employers typically withhold this tax from your paycheck automatically.
Self-Employment Income: Self-employed individuals are also responsible for making estimated tax payments throughout the year.
Interest and Dividends: Earnings from bank accounts, stocks, and other investments are fully taxable in Massachusetts unless otherwise exempt under specific provisions.
Capital Gains: Long-term capital gains (on assets held over one year) are generally taxed at the standard 5% rate. However, short-term capital gains (on assets held for one year or less) are taxed at a higher rate of 12%.
Other Taxable Income: This may include rental income, royalties, prizes, and certain types of retirement distributions such as from 401(k)s and traditional IRAs.
Who Has to Pay Massachusetts State Income Tax?
Your tax liability depends on your residency status and where your income is sourced:
Full-Year Residents: If you live in Massachusetts for the entire calendar year, you must report and pay tax on all income, regardless of where it was earned.
Part-Year Residents: If you moved into or out of Massachusetts during the year, you are considered a part-year resident. You are only taxed on the income earned while you were a resident of Massachusetts.
Nonresidents: Even if you don’t live in Massachusetts, you may still owe taxes to the state if you earned income from Massachusetts sources.
Which State Has No State Income Tax?
One of the most common strategies for reducing your overall tax burden is relocating to a state with no personal income tax. As of now, nine U.S. states do not tax residents on earned income, offering potentially significant savings for high earners, retirees, and remote workers.
States with No State Income Tax:
Alaska – No income tax and no state sales tax (though local sales taxes may apply). Alaska relies heavily on oil revenue to fund public services.
Florida – Popular with retirees, Florida has no income tax, no estate or inheritance tax, and relatively low property taxes.
Nevada – No income tax, supported by tourism and gaming revenue, but comes with higher sales taxes and living costs in urban areas like Las Vegas.
South Dakota – No income tax, low cost of living, and business-friendly policies. It’s also a favorable state for trust and estate planning.
Tennessee – Formerly taxed interest and dividends but has fully phased that out. No income tax, and relatively low property taxes make it attractive for retirees.
Texas – No income tax, but offsets this with some of the highest property taxes in the nation. Sales tax is also above average.
Washington – No income tax, but high sales tax and excise taxes. Recently introduced a capital gains tax on certain investment income, which may impact higher earners.
Wyoming – No income tax, low property taxes, and no estate tax. A top choice for those seeking minimal tax exposure.
New Hampshire – No tax on wages or salaries, but it does tax interest and dividends over certain thresholds. However, it's phasing out this tax gradually and is expected to eliminate it entirely by 2027.
Comparing Massachusetts vs. No-Income-Tax States
While these states don't tax income, many make up for it with higher sales taxes, property taxes, or excise taxes. For example:
Texas has no income tax but some of the highest property taxes in the country.
Florida offers low taxes across the board but has a higher cost of homeowners insurance.
Massachusetts, by contrast, offers a balanced mix: a flat income tax, above-average property taxes, and a 6.25% sales tax (with exemptions for essentials like groceries and clothing under $175).
Do Retirees Pay State Taxes in Massachusetts?
Massachusetts is partially tax-friendly for retirees. While it doesn’t tax Social Security benefits or Massachusetts public pensions, other retirement income is subject to a flat 5% state income tax.
Tax-Free: Social Security benefits and Massachusetts state or local government pensions.
Taxed at 5%: Private pensions, out-of-state public pensions, 401(k) distributions, traditional IRA withdrawals, and most investment income.
The state offers valuable tax relief for seniors, including the Senior Circuit Breaker Tax Credit. This refundable credit—worth up to $1,200+—is available to residents age 65+ who meet income and housing cost limits. Both homeowners and renters may qualify.
Additional relief options include property tax deferral programs and local senior tax exemptions, which vary by city or town.
Overall, Massachusetts offers some meaningful breaks for retirees, but those with substantial income from taxable retirement accounts or private pensions may still face a moderate tax burden.
What is the Most Tax-Friendly State?
The most tax-friendly states generally feature:
No state income tax
Low property taxes
No estate or inheritance tax
Top Tax-Friendly States:
Wyoming – No income tax, low property taxes, no estate tax.
Florida – No income tax, no inheritance tax, senior-friendly policies.
Tennessee – No income tax on wages, low property taxes, no estate tax.
Massachusetts in Comparison:
Has a 5% income tax
Above-average property taxes
No estate tax threshold until $2 million (as of recent legislation)
While Massachusetts doesn’t lead the pack, it offers strong public services, healthcare, and education, which may justify its tax burden for many residents.
What is the Best State to Live in Financially?
Financial livability isn’t just about taxes; it’s a combination of factors that impact your overall financial well-being, such as the cost of living, wages, real estate prices, and job opportunities. While taxes play a role, it's essential to evaluate the complete picture.
Massachusetts:
Income Tax: 5% flat rate
Sales Tax: 6.25% (no local sales tax surcharges)
Property Taxes: Among the highest in the U.S., particularly in suburban and metropolitan areas
Cost of Living: High, especially in the Greater Boston area, where housing costs can be significant
Financial Perks: Massachusetts boasts a high median income, strong job market, and excellent healthcare and education systems, making it an attractive option for professionals and families despite the high living costs.
States with Lower Financial Burden:
Tennessee: Low taxes, low property taxes, and a growing economy. The state also benefits from a relatively low cost of living.
Florida: Offers no state income tax, affordable housing compared to Northeastern states, and tax advantages for retirees, such as exemptions on pensions and Social Security benefits.
Wyoming: No income tax, low housing costs, and low population density. This state offers financial advantages without the crowded conditions of major metropolitan areas.
If your priority is keeping more of what you earn and maintaining financial flexibility, these states may offer better long-term value, particularly if you're considering retirement or a shift to a lower-cost lifestyle.
Conclusion
Massachusetts does have a state income tax—a flat 5% on most income. While retirees benefit from tax-free Social Security and public pensions, other retirement income is still taxed. Compared to tax-free states like Florida and Wyoming, Massachusetts carries a moderate to high overall tax burden, especially with property taxes.
That said, many residents find the state’s economic opportunities, healthcare access, and public infrastructure to be worth the cost.
Considering a move or planning for retirement? Consult a tax professional to evaluate the best state for your personal financial situation and to develop a tax-smart strategy for the future.
FAQs
Do I have to pay Massachusetts state income tax?
Yes. Massachusetts has a flat 5% income tax on most income for residents, part-year residents, and nonresidents with MA-sourced income.
Which state has no state income tax?
Nine states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (on earned income).
Do retirees pay state taxes in Massachusetts?
Yes, but only on a certain income. Social Security and MA public pensions are tax-free. IRA and 401(k) withdrawals are taxed at 5%.
What is the most tax-friendly state?
Wyoming, Florida, and Tennessee are among the most tax-friendly states due to no income tax and low property or estate taxes.
What is the best state to live in financially?
That depends on your priorities. Tax-free states like Tennessee, Florida, and Wyoming are cost-effective, while Massachusetts offers higher wages and better infrastructure at a higher tax cost.
