Massachusetts Income Tax Guide 2026: 5% Rate + 4% Millionaires' Surtax

Massachusetts operates one of the simplest income tax structures in the US: a near-flat 5% rate on most income, with a $4,400 personal exemption for single filers. The system was designed to be easy to understand — and for most residents earning under $1,000,000, it largely is. But the November 2022 voter-approved Fair Share Amendment (Question 1) added a 4% surtax on income above approximately $1,000,000, creating a notable kink in the rate structure for the Commonwealth's highest earners.

Massachusetts is a high-income state by national standards. The Boston metro is home to one of the largest biotech and life sciences clusters in the world, a major financial services industry, and top-ranked universities (Harvard, MIT, BU) generating significant graduate-level employment. For these workers — many of whom earn well above average US salaries — understanding the interaction of the 5% base rate, the 8.5% short-term capital gains rate, and the surtax is essential tax planning.

Massachusetts Income Tax Rate 2026: 5% Base Rate Explained

Massachusetts has taxed most income at 5% for many years. The rate applies to wages, salaries, tips, self-employment income, business income, interest, dividends, and long-term capital gains. This near-flat structure means that — unlike federal income tax or many state systems — most Massachusetts residents face the same marginal rate whether they earn $30,000 or $900,000.

The primary mechanism for reducing Massachusetts taxable income is the personal exemption:

• Single filers: $4,400 personal exemption
• Married filing jointly: $8,800 personal exemption
• Per dependent: $1,000 additional exemption

Massachusetts does not have a standard deduction in the traditional sense — the personal exemption is the primary reduction available to most filers. Certain other deductions are available (e.g., rental deductions, student loan interest at the state level, childcare deductions), but the system is broadly simpler than the federal system.

What is taxed at 5%: Wages and salaries, business income from Schedule C, interest income, dividend income, long-term capital gains (held more than one year), and most other income.

What is taxed at 8.5%: Short-term capital gains (assets held one year or less) and certain other unearned income. This higher rate on short-term gains is a notable feature of Massachusetts tax law that affects active investors and employees receiving short-vesting equity compensation.

What is exempt: Social Security benefits are fully exempt from Massachusetts income tax, making the state relatively friendly for retirees on fixed income.

How Much Massachusetts Income Tax Do You Actually Pay?

The following worked examples are for a single filer with wage income only, using the $4,400 personal exemption. Taxable income = gross income minus $4,400.

• $50,000 gross income: Taxable income $45,600. Massachusetts income tax: $2,280. Effective rate: 4.56%.
• $75,000 gross income: Taxable income $70,600. Massachusetts income tax: $3,530. Effective rate: 4.71%.
• $100,000 gross income: Taxable income $95,600. Massachusetts income tax: $4,780. Effective rate: 4.78%.
• $150,000 gross income: Taxable income $145,600. Massachusetts income tax: $7,280. Effective rate: 4.85%.
• $250,000 gross income: Taxable income $245,600. Massachusetts income tax: $12,280. Effective rate: 4.91%.
• $1,100,000 gross income: 5% applies on approximately the first $1,000,000 of taxable income (~$49,780 after exemption); then 9% (5% + 4% surtax) applies on the approximately $100,000 above the threshold (~$9,000 additional). Total Massachusetts income tax: approximately $58,780. Effective rate: approximately 5.34%.

The effective rate rises gradually toward 5% as income increases and the exemption becomes proportionally smaller. The rate steps up noticeably once income crosses approximately $1,000,000 due to the surtax.

These figures represent Massachusetts state income tax only. Federal income tax, FICA payroll taxes, and the approximately 0.32% Paid Family and Medical Leave employee contribution apply separately.

The Millionaires' Surtax: 4% Above $1 Million

Massachusetts voters approved Question 1 — the Fair Share Amendment — in November 2022 by approximately 52% to 48%. The measure amended the Massachusetts Constitution to impose an additional 4% income tax on taxable income above approximately $1,000,000. It took effect on January 1, 2023.

How it works: The $1,000,000 threshold is adjusted annually for inflation. Income below the threshold is taxed at the standard 5% rate. Income above the threshold is taxed at 9% (the standard 5% plus the 4% surtax). The surtax applies to all types of income above the threshold — wages, business income, capital gains, and other taxable income.

Revenue use: The constitutional amendment requires surtax revenue to be spent on education and transportation, though the legislature has flexibility in how it allocates those funds.

Who it affects in Massachusetts:

• Biotech and pharma executives: The Boston metro (Cambridge, Waltham, Lexington corridor) is one of the world's largest life sciences clusters. Senior executives, founding scientists, and employees with large stock option grants frequently exceed the $1M threshold upon vesting or exit events.
• Financial services professionals: Boston is home to major asset managers (Fidelity, State Street, Wellington Management) and hedge funds. Portfolio managers, senior analysts, and fund partners with performance compensation regularly exceed the threshold.
• Tech and startup founders: Massachusetts ranks among the top states for venture capital activity. Founders and early employees who receive large equity payouts on acquisition or IPO may face the surtax on a one-time basis.
• Real estate investors: Boston's real estate market is among the most expensive in the US. Large capital gains from property sales can trigger the surtax even for individuals who do not earn above $1M in ordinary wages.

Planning considerations: Because the surtax applies to all taxable income in aggregate, individuals with large one-time events (a business sale, large stock vesting, real estate transaction) may find their effective rate for that year pushed significantly above the 5% baseline. Timing and structuring of income recognition could affect whether income falls above or below the threshold in a given year. Consult a qualified Massachusetts CPA for planning specific to your situation.

Short-Term Capital Gains at 8.5%: Massachusetts's Investment Tax Twist

Most states that tax capital gains treat them the same as ordinary income — whatever the income tax rate is, gains are taxed at that rate. Massachusetts takes a different approach: long-term capital gains (assets held more than one year) are taxed at the standard 5% rate, but short-term capital gains (assets held one year or less) are taxed at 8.5%.

This 8.5% rate on short-term gains is meaningfully higher than the 5% base rate and can catch investors off guard if they are not aware of it. It also applies to certain other categories of unearned income.

Who the 8.5% rate affects most:

• Active traders: Investors who frequently buy and sell securities within a 12-month window face the higher rate on their gains. A trader who generates $50,000 in short-term gains pays $4,250 in Massachusetts tax on those gains alone — $1,750 more than if the same gains were long-term.
• Employees with short-vesting equity: Restricted stock units (RSUs) that vest and are sold immediately, or stock options exercised and sold in under a year, may generate short-term gains taxed at 8.5%.
• Real estate flippers: Properties held under one year before sale generate short-term gains at the higher rate.

The practical implication: Massachusetts creates a meaningful incentive to hold investments for more than one year. The spread between 5% (long-term) and 8.5% (short-term) is 3.5 percentage points — a material difference for larger gain amounts.

Note that this rate applies only at the Massachusetts level. Federal capital gains treatment (0%, 15%, or 20% for long-term; ordinary income rates for short-term) applies separately.

Massachusetts vs Neighboring States: CT, RI, NH, NY

Massachusetts sits among a cluster of states with very different income tax approaches. Understanding the comparison matters for remote workers, border-region residents, and those considering relocation.

• New Hampshire (NH): 0% on wages and salaries. New Hampshire has no income tax on earned income. It formerly taxed interest and dividend income at 5%, but that tax is being phased out (4% in 2023, 3% in 2024, 2% in 2025, 1% in 2026, and fully repealed as of January 1, 2027). For a Massachusetts worker earning $100,000 who moves to New Hampshire and works remotely for a non-Massachusetts employer, the annual state income tax saving is approximately $4,780. Southern New Hampshire (Nashua, Manchester, Salem) has seen consistent population growth from Massachusetts workers who have commuted or relocated to take advantage of the tax differential while remaining within reach of Boston.
• Connecticut (CT): Up to 6.99% graduated. Connecticut has a graduated income tax with a top rate of 6.99% starting at $500,000 (single). At $100,000 income, Connecticut's effective rate is approximately 5%–5.5% — similar to or slightly higher than Massachusetts. Connecticut does not have a Millionaires' Surtax at Massachusetts's scale.
• Rhode Island (RI): Up to 5.99% graduated. Rhode Island's top rate of 5.99% kicks in at $166,950 (single) in 2026. For most income levels, Rhode Island is slightly more expensive than Massachusetts. At $100,000, Rhode Island's effective rate is approximately 4.6%–5%, comparable to Massachusetts.
• New York (NY): Up to 10.9% including NYC surcharge. New York's top state income tax rate is 10.9% for income above $25,000,000. New York City residents pay an additional city income tax (up to 3.876%). At $100,000 income, a New York City resident faces approximately 9%–10% combined state and city income tax — roughly double the Massachusetts burden. This makes Massachusetts genuinely competitive on income tax relative to New York for high earners who do not need to be in NYC.

The NH border effect: The New Hampshire border runs through communities with large Massachusetts employer commuting populations (e.g., Haverhill, Lowell, Lawrence residents commuting south). For fully remote workers, establishing New Hampshire residency eliminates Massachusetts income tax entirely — a decision that depends on housing costs, lifestyle factors, and careful attention to Massachusetts's residency sourcing rules. Massachusetts taxes income earned within its borders even for non-residents, so hybrid workers with partial Massachusetts workdays retain partial Massachusetts tax obligations.

Who Pays the Most Under Massachusetts's System

Massachusetts's near-flat structure means the nominal rate is the same for most taxpayers. But certain income profiles face meaningfully higher effective burdens:

Biotech and pharma executives with large equity events: The Boston-Cambridge life sciences corridor (sometimes called the 'Kendall Square ecosystem') is one of the densest concentrations of biotech companies in the world. Senior scientists and executives at companies like Moderna, Biogen, or the dozens of VC-backed clinical-stage companies frequently hold stock options worth millions. When a company achieves a liquidity event (IPO, acquisition, SPAC), founders and key employees may recognize income well above the $1,000,000 surtax threshold in a single year — facing an effective 9% Massachusetts rate on the excess, plus the 8.5% rate if the gains are short-term.

Boston real estate investors with large capital gains: Boston's residential real estate market is among the most expensive in the US (median condo price in the city core exceeds $700,000). An investor selling a multi-unit property with significant appreciation may have a capital gain large enough to trigger the surtax. The combination of Massachusetts capital gains tax (5% long-term, 8.5% short-term) plus the 4% surtax could mean effective capital gains tax of 9%–12.5% at the state level alone for those above the threshold.

Financial services professionals with performance compensation: Portfolio managers and senior analysts at Boston's major asset managers (Fidelity, State Street, Wellington, Putnam) and hedge funds typically have base salaries plus significant bonus or carried interest income. This income structure means large year-to-year variability — in a strong performance year, total compensation can easily exceed $1,000,000, triggering the surtax on the excess.

Retirees on Social Security and modest pension income: At the other end of the spectrum, Massachusetts is relatively favorable for lower-income retirees. Social Security benefits are fully exempt from Massachusetts income tax, and the $4,400 personal exemption reduces the taxable base further. A retiree receiving $25,000 in Social Security and $20,000 from a pension pays Massachusetts income tax only on the $20,000 pension income (minus the $4,400 exemption), resulting in approximately $780 in Massachusetts income tax — an effective rate under 2% on total income.