Registering Requirements in Massachusetts
Depending on your business structure, you may be required to register and file with several state agencies in Massachusetts. The State of Massachusetts provides a step-by-step guide for new businesses here.
S-Corporation Income Tax
Massachusetts is unusual in that it requires S corporations to pay corporate excise tax on either taxable tangible personal property or on net worth, as described below. Each individual shareholder must pay state tax on his or her share of the corporation’s income.
S corporations are required to file Form 355S.
LLC/Partnership Income Tax
LLCs and partnerships are not required to pay income tax or excise tax to Massachusetts. Instead, income from the business is distributed to individual LLC members or partners, who then pay Massachusetts income tax on that amount with their personal return.
Partnerships are required to file Form 3.
Corporate Excise Tax
For traditional corporations (C corporations), the corporate excise tax generally is the sum of two amounts:
A tax of $2.60 per $1,000 of the greater of either taxable Massachusetts tangible personal property or taxable net worth; and an 8% tax on income attributable to Massachusetts.
There is a minimum excise tax for corporations of $456.
The amount of corporate excise tax that an S corporation generally is required to pay depends in part on the corporation’s gross receipts. More specifically:
If an S corporation’s gross receipts are less than $6 million, the corporation owes a tax of $2.60 per $1,000 of either taxable Massachusetts tangible personal property or taxable net worth.
If an S corporation’s gross receipts are $6 million or more, the corporation not only owes the latter amount based on property or net worth, but also owes a tax of 1.83% on its gross receipts.
If an S corporation’s gross receipts are $9 million or more, the corporation not only owes the foregoing amount based on property or net worth, but also owes a tax of 2.75% on its gross receipts.
In addition, S corporations, like traditional corporations, are required to pay a minimum excise tax of $456
Massachusetts allows partnerships and S corporations to file an electronic composite return on Form MA NRCR and make estimated tax payments as an agent on behalf of two or more qualified electing nonresident members.
Individual Income Tax
Massachusetts has a static conformity with the Internal Revenue Code as it existed on January 1, 2005, except for certain specific IRC sections that are followed on a rolling basis.
The starting point for computing Massachusetts personal income tax liability is the federal adjusted gross income and allows their own state defined additions and subtractions to arrive at Massachusetts adjusted gross income.
Massachusetts does not offer a standard or itemized deduction. However, if you itemized on your federal return, you're allowed an exemption for medical and dental expenses.
You are entitled to a personal exemption if you file a Massachusetts income tax return. The amount you're allowed depends on your filing status.
The personal exemption amounts are as follows:
• Single $4,400
• Married filing separate $4,400
• Head of household $6,800
• Married filing joint $8,800
You are allowed a dependent exemption for any qualifying child or relative. The exemption amount is $1,000 for each.
Massachusetts does not conform to the Internal Revenue Code (IRC) section 199A, also known as the QBI deduction.
Individual income is taxed at a flat rate of 5.05% for 2019. The tax rate beginning in 2020 has been lowered to 5%.
Individuals whose Massachusetts gross income is $8,000 or more must file a Massachusetts personal income tax return. Individuals use Massachusetts Form 1 to file individual income tax.
CARES Act Guidance
Massachusetts decouples from almost all CARES Act provisions. It specifically decouples from the PPP loan forgiveness, meaning that it will be includable in gross income of an individual; however, deductions are allowed for covered expenses related to the forgiven PPP loan.
Massachusetts does not conform to the IRC Section 172 of the CARES Act regarding business net operating loss (NOL) provisions. Instead, Massachusetts will retain its treatment of business NOLs, not allowing any carryback and allowing only a 20-year carryforward.
Massachusetts does specifically adopt the current provision of IRC for the technical correction to QIP, without adopting bonus depreciation under IRC Section 168(k).
Individual income tax returns are due on the 15th day of the fourth month following the close of the tax year. For most filers, the due date will be April 15th.
Partnerships and S corporation returns are due on the 15th day of the third month following the close of the tax year. For most filers, the due date will be March 15th.
Corporations which can reasonably expect to owe their corporate excise tax to exceed $1,000 for the tax year are required to make estimated payments. Corporations use Form 355-ES.
Individuals who can reasonably expect to owe $400 or more in tax at the end of the tax year must pay Massachusetts estimated taxes. Individuals use Form 1-ES.
Filing an Extension
S corporations meeting certain requirements will be given an automatic six month extension. See the Massachusetts website for more details.
Partnership and individual income returns are given
S corporations and individuals may be subject to a penalty for late filing at 1% per month (or fraction thereof) of the tax due, up to a maximum of 25%.
A $5 per day penalty may be imposed for failure to file a partnership return on time.
If your business was formed or is located in another state, but generates income in Massachusetts, it may be subject to Massachusetts taxes. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated. If you run such a business, you should consult with a tax professional.
Massachusetts Department of Revenue: