Massachusetts Retirement

If you live in Massachusetts you will not be able to write most retirement income off from your state income taxes. Almost all retirement income including IRA withdrawals, pensions, annuities, and federal pensions are taxable. Social Security payments are not considered taxable income in Massachusetts so you can deduct them from your state tax return.

There is an exemption for retirement income but it is only $2,000. Once retirement income reaches $2,000 you will have to declare it as taxable income in Massachusetts. If you are not a full time resident of the state, you will not have to declare retirement income. Instead you will have to follow the tax regulations of your home state.

Income in 401(K)s, Keogh plans, IRAs, and annuities in Massachusetts is considered tax deferred. You will not have to pay taxes on it while it is in the plan. You will have to declare that income on your state income tax return if you take it out of the plan. Massachusetts follows federal rules on such income, so anything the federal government taxes will be taxed by the state.

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Massachusetts Income Tax

Massachusetts' income tax system is different from that in other states. Instead of rates based on the amount of taxable income, Massachusetts income tax is based on the kind of income received. Most income is taxed at a flat rate of 5.3%.

Retirement income including money from pensions and Social Security is considered gross income which is taxed at the 5.3% rate. Most interest and dividend income is taxed at this rate as are long term capital gains. Short term capital gains such as gambling winnings are taxed at a much higher rate of 12%. If you live in Massachusetts and do not purchase health insurance as required by State law, the state can increase your income tax by up to 50% to pay for it.

You are entitled to a personal tax exemption if you live in Massachusetts. The standard exemption is $4,400 for singles, $6,800 for head of household and $8,800 for married couples filing jointly. If you are over 65 you can add $700 to this exemption for each person covered. That means the exemption for a married couple filing jointly over 65 would be $10,200. To get these deductions you will have to subtract them from the adjusted gross income on your state tax return.

Massachusetts Sales Tax

Massachusetts has a state sales tax of 6.25% that covers most retail purchases in the state. Food not bought at restaurants is exempt from this sales tax, so is clothing that costs less than $175. Prescription drugs are exempt from the state sales tax. Utilities such as electricity and heating fuel is also exempt from the sales tax. If you buy a car in Massachusetts you should know that you and not the seller are responsible for paying the sales tax.

Local governments in Massachusetts can only impose sales taxes on select items such as restaurant meals and hotel rooms. That means retail sales taxes in the state are effectively capped at 6.25%.

Massachusetts Property Tax

Property taxes in Massachusetts are collected by city and town governments. To learn your property tax rate and any exemptions you might qualify for you will have to contact your municipal government. If you are over 65 you could qualify for a flat property tax exemption of $500.

You can also qualify for another property tax exemption called the Circuit Breaker or the Real Estate Tax Credit for Persons 65 and Older. If you qualify you can deduct up to $970 from your state income taxes. You do not even need to own a home to qualify for this credit, renters can get it too. All you is to be over 65 and have an income under $51,000 if you are single or $77,000 if you are married filing jointly. Persons who are married filing separately cannot qualify.

Capital: Boston
Cost of Living Rank: #41
Sales Tax: 6.25%
Income Tax: 5.3%
State Website: