When people talk about taxes, they are often referencing federal income tax rates. But we know that state taxes can play an important role, too, and they should be considered in relation to your investments as well as many other financial decisions. Here’s a quick rundown on taxes in Massachusetts.
MA income taxes
In Massachusetts workers must pay income taxes on their wages. At one time the rate was above 5% but a voter referendum and some wrangling back and forth on Beacon Hill over the years finally resulted in this rate being cut to 5% effective on January 1, 2020.
MA capital gains taxes
This time of year, we are often looking at year-to-date gains or losses to see if there are opportunities to reduce or offset capital gains from investments. In Massachusetts the tax on capital gains, dividends, interest, and other income is 5%. So, when calculating your tax on capital gains, you’ll pay 15% federal tax (or 20% for incomes above approximately $400,000) plus another 5% in state tax for a total of 20% (or 25% for higher incomes). For many filers, these tax rates can be lower than the tax on income.
MA sales taxes
Sales taxes are, of course, different from income taxes. Currently the MA sales tax is 6.25%. Over the last several years the Massachusetts legislature has passed a sales tax holiday waiving this tax. This year the sales tax holiday occurred on August 29th and August 30th. This permitted individuals to buy most retail items without paying sales tax up to $2,500. However, a number items did not qualify for the exemption: meals, motor vehicles, motorboats, telecommunications services, gas, steam, electricity, tobacco products, marijuana or marijuana products, and alcoholic beverages. Oh, well. You can’t have everything sales tax free in Massachusetts.
While the federal estate tax was raised above $10 million with recent tax law changes, the Massachusetts estate tax kicks in once the estate exceeds $1 million. So, you might think your estate is in the clear, but many states now have lower thresholds including Massachusetts. And, if the estate is worth just $1 dollar above the threshold, the tax applies on the entire amount, e.g., it does not apply just to the $1 over the one million estate.
City and town sales taxes in Massachusetts
In the last few years, the state legislature has allowed many cities and towns to levy their own sales taxes most commonly on restaurant meals. And, it is cropping up in more and more towns.
For those of you who still smoke cigarettes, a 20-count package includes $3.51 in state taxes. Seems like a good habit to break, if you can.
We’re not tax experts or preparers but we thought you’d appreciate a quick rundown on taxes in Massachusetts. If you have additional tax questions, please consult your tax professional or call us. We’re here to help.
Lyman H. Jackson
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.
 Higher income filers may be subject to one or more additional federal taxes that apply to income or capital gains.