Payroll tax in Massachusetts: What employers need to know [Updated 2024]

Albert Einstein once said, “The hardest thing in the world to understand is the income tax.” This is particularly true for employers who have workers across states or who live in states with complex tax systems. In addition to federal withholding of FICA, the US federal income tax which includes Medicare tax and Social Security tax, companies must also comply with state payroll taxes. Regulations vary across states, which means employers must understand tax legislation in every location employees reside.

The Commonwealth of Massachusetts has a flat rate income tax system for most employees, which means that its employer tax framework is slightly less complicated than states with progressive taxes. However, there are still other types of taxes, tax rates, and deadlines to follow to stay compliant with the state.

Whether you're overseeing a small business or a global corporation with employees in Boston, Cambridge, or elsewhere in the state of Massachusetts, it’s critical to understand what taxes are owed and other payroll tax responsibilities. Let's get into the details.

The 3 Massachusetts payroll taxes

In Massachusetts, most employers are responsible for three types of payroll taxes, which are overseen and collected by various government departments.

Unemployment insurance tax

Unemployment insurance taxes are paid by employers. These funds go toward programs that provide temporary payments and services to people who are unemployed due to a situation out of their control. Private, for-profit employers must pay into the Massachusetts unemployment insurance (UI) tax program if they:

• Have employees working 1+ days in 13 weeks in a calendar year.
• Pay wages of $1,500+ in a calendar year.

Rates can be calculated on UI Online, a website from the Department of Unemployment Assistance. This portal uses quarterly employment information and wage details to calculate quarterly contribution amounts. That calculation includes UI as well as COVID-19 COVID-19 Recovery Assessment, Employer Medical Assistance Contribution (EMAC)/Unemployment Health Insurance (UHI), Employer Medical Assistance Contribution (EMAC) Supplement, and Workforce Training Fund (WTFP).

New employers pay different rates than established employers who have been operating for 3 calendar years. Employers who are not in the construction industry pay 1.87% in 2024. Construction industry employers pay 3.76% in 2024.

In the fourth year of operation, employers will receive an experienced rate, the amount of which is based on wages paid. Businesses in Massachusetts face some of the highest unemployment insurance tax rates in the country. As of 2024, the taxable wage base is $15,000 per employee per year.

Personal income tax

In Massachusetts, employers withhold state income taxes from payments made to employees who either live in or are employed in the state. Nonresident employees performing services in Massachusetts still need to have wages withheld. Nonresident employees who don’t work in the state but are paid from a Massachusetts office don’t need to have income tax withheld.

Employers also need to withhold income from reported tips, as well as any other non-exempt compensation, such as fees, bonuses, and commissions.

Typically, income is taxed at a flat 5%. However, there are exemptions and other tax deductions that should be made, depending on the employee and their filing status. The Massachusetts Circular M has current tax withholding information, with tables for withholding calculations.

Withholding amounts are calculated by tallying:

• The employee’s taxable compensation
• The number of exemptions claimed
• Any additional withholding amounts, as requested in Form M-4 (the Massachusetts Employee's Withholding Exemption Certificate)

Note that, in 2022, Massachusetts voters approved a ballot measure to impose an additional 4% tax on individual taxable income exceeding $1 million. This “Millionaire’s Tax” began to be imposed in 2023, and the $1 million limit will be adjusted annually to reflect cost of living changes.

Paid Family and Medical Leave

Paid Family Medical Leave (PFML) is a state benefit for Massachusetts workers who are eligible to take up to 26 weeks of paid leave to deal with medical concerns or family matters. Employers are only obligated to send employee contributions if they have 25+ individuals on their team who are covered and qualify. PFML is withheld from both W-2 employee and 10099-MISC contractor paychecks and sent to the Department of Family and Medical Leave (DFML).

Employers who have self-insured or private plans with employee benefits that equal or surpass what’s offered by PFML may qualify for an exemption.

Employers with more than 25+ covered workers

Employers with fewer than 25 covered workers

Payroll tax due dates in Massachusetts

Employers subject to making Massachusetts unemployment contributions must submit Employment and Wage Detail Reports and payments to the Department of Unemployment Assistance (DUA) quarterly. Paying on time is important: Unpaid UI contributions accrue interest at a rate of 12% per year, starting from the quarter due. 

Here is the quarterly payment schedule for UI taxes in Massachusetts:

• Quarter 1: 3 pm on April 30
• Quarter 2: 3 pm on July 31
• Quarter 3: 3 pm on October 31
• Quarter 4: 3 pm on January 31

Income tax withholding due dates vary depending on projected annual withholding tax amounts. Here’s a breakdown:

Late withholding tax returns can incur interest and penalties. Late payment penalties are 1% of the unpaid tax, up to a maximum of 25%. Failing to file a return by the due date costs 1% of the balance due per month, up to 25%. Late tax payments and weekly deposits from employers with $25,000+ in annual withholding liabilities can be hit with a 5% penalty. 

How to submit payroll taxes in Massachusetts

Now that you’ve learned about what payroll taxes must be paid and when, here’s how to submit those taxes.

First, Massachusetts employers must register with the Department of Revenue to collect withholding taxes. Employees should complete both the federal IRS Employee's Withholding Allowance Certificate (W-4 Form) and Massachusetts Employee's Withholding Exemption Certificate (Form M-4). Each quarter, employers are responsible for reporting their wages paid to each Massachusetts employee. 

Note also that, at the end of each calendar year, employees should get a Wage and Tax Statement (Form W-2), which shows their total wages, the amount of Social Security and Medicare taxes withheld, and the amount of federal and Massachusetts income tax withheld.

Employers must also register with the Department of Unemployment Assistance (DUA) to make UI contributions and must report both UI gross pay as well as wages subject to withholding.

There are several ways to submit tax payments.

UI Online

UI Online can be used for all unemployment insurance transactions. The system accepts ACH debit, ACH credit, or credit cards (Visa, Discover, or MasterCard). 

Mail

In some cases, employers may be able to pay state income taxes through mailed checks or money orders sent to:

Massachusetts DOR

P.O. Box 419540

Boston, MA 02241-9540

Paper checks can also be sent to the DUA for unemployment insurance alongside a printed voucher. The check must be mailed to the address listed on the voucher.

However, note that the DOR highly encourages filing electronically, and even compels many employers to do so. This includes new businesses, businesses applying for additional registration, payroll service providers, and employers with an annual combined tax liability of $5,000+ from a variety of taxes, including withholdings. 

MassTaxConnect

Employers can use MassTaxConnect to pay both withholdings and PMFL contributions. The system accepts electronic funds transfer (EFT) debit, debit card (Visa or MasterCard), credit cards (Visa, MasterCard, or Discover), or ACH credit.

Rippling’s full-service payroll software

Rippling offers an even easier option. You don’t need to worry about tax deadlines and confusing payment options with Rippling’s payroll software. Rippling automates all your tax compliance work and files your federal and Massachusetts state taxes at the right time, with the right agencies. 

FAQs about Massachusetts payroll taxes

Are there local tax laws in Massachusetts?

No, there are no local tax laws in Massachusetts when it comes to payroll.

Can your tax returns be audited in Massachusetts?

Yes, your tax returns can be audited in Massachusetts. The Massachusetts Department of Revenue has the right to audit you to determine the veracity of what has been submitted. Sometimes audits will take place if there is an error on an audit that needs to be addressed or if information on a return triggers an audit. Furthermore, the Department of Unemployment Assistance is also allowed to periodically audit employer records related to UI taxes.

Are nonprofit organizations subject to payroll taxes in Massachusetts?

Yes, nonprofit organizations are subject to payroll taxes, even if they are otherwise tax-exempt from federal taxes on net profit.

Is workers’ compensation insurance required in Massachusetts?

While workers’ compensation is a type of insurance coverage rather than a tax, it is required in Massachusetts for all employers, even those based out of state.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.