This publication contains general information regarding withholding of Massachusetts income tax from wages. It is designed to inform you, as an employer, of the basics of collecting and remitting employee withholding to the Massachusetts Department of Revenue (DOR).
Written in a straightforward question and answer format, this guide defines basic withholding terminology, outlines an employer's responsibilities and explains the methods of calculating the proper amount of withholding.
Please note that Massachusetts uses federal legal definitions for many basic withholding concepts such as "employer" and "employee." The descriptions of basic terms provided here are not comprehensive. Any complex definitional questions must be resolved in accordance with federal rules.
This guide is part of an ongoing series of publications designed to keep the public informed about Massachusetts tax law. If you have further questions about the withholding of income tax, please call the Department's Customer Service Bureau at 617-887-MDOR or toll-free in Massachusetts at 800-392-6089.
The Department is pleased to offer Massachusetts employers access to a number of useful resources via its website. The website contains information on various tax and employer obligations, as well as electronic filing and payment options. WebFile for Business allows employers to file and pay all of their Massachusetts payroll taxes, as well as report their new hires to the Department electronically.
Basic Definitions and Employer Responsibilities
What is withholding?
Withholding refers to income tax withheld from wages by employers to pay employees' personal income taxes. As an employer, you are required by law to withhold Massachusetts personal income tax from the wages of residents for services performed either within or outside Massachusetts, and from the wages of nonresidents for services performed in Massachusetts.
Who is an employer?
An employer is any person, corporation or organization for whom an individual performs a service as an employee. An employer may be an individual, corporation, partnership, estate, trust, association, joint venture or other unincorporated organization. Religious, educational, charitable and social organizations also may be employers. Employers are responsible for collecting and remitting employee withholding to the Commonwealth.
Who is an employee?
An employee is anyone who performs services for another person or organization under the direction and control of that person or organization. The relationship of employer and employee exists when the person for whom services are performed has the right to control and direct the details and manner in which the job is to be accomplished.
Is the owner of a business considered an employee?
As a general rule, the owner of a sole proprietorship is not considered an employee for withholding purposes even if he or she has no other employees. Therefore, the owner would not register for withholding solely to pay his or her own taxes.
However, if an owner expects to owe more than $400 in Massachusetts income tax on the income received from the business, he or she is required to make individual estimated income tax payments.
What are the responsibilities of an employer?
An employer is responsible for:
- Registering with DOR to collect withholding taxes.
- Withholding state income taxes from employees who reside or are employed in Massachusetts and remitting those taxes, along with the appropriate form or electronic return, on time. (Please refer to the section entitled, "How to Calculate Withholding from Wages." )
- Obtaining from each employee a completed Employee's Withholding Allowance Certificate (Form W-4) and Massachusetts Employee's Withholding Exemption Certificate (Form M-4).
- Reporting New Hires: Reporting to DOR, within 14 days of hire or reinstatement, all newly hired employees, employees returning to work after 30 days or more off the payroll, and independent contractors who will be earning $600 or more. Reports may be made via WebFile for Business. Employers who employ 25 or more employees throughout the year are required to report new hire information electronically. Employers with fewer than 25 employees may submit paper reports on New Hire and Independent Contractor Reporting Form ( Form NHR ). Send completed forms to DOR by fax at 617-376-3262, or mail to Department of Revenue, PO Box 55141, Boston, MA 02205-5141.
How does an employer register to collect withholding?
Employers must register to collect Massachusetts withholding taxes online through DOR's WebFile for Business application.
Must a tax-exempt organization collect withholding?
Yes. Tax-exempt organizations such as religious and government organizations are required to withhold income tax from employees.
Is a Massachusetts employer required to withhold state income tax from an employee who is a nonresident?
Yes. Withholding is required on wages paid to nonresidents that are attributable to services performed in Massachusetts. However, if a nonresident does not work in Massachusetts, even if he or she is paid from a Massachusetts office, withholding is not required.
Example: Michael is single, lives in Nashua, New Hampshire and works in Massachusetts. His Massachusetts employer withholds the appropriate amount of Massachusetts income tax from his paycheck and remits it in full to DOR. Michael files a nonresident income tax return in Massachusetts.
Is a non-Massachusetts employer required to withhold state income tax from wages for a Massachusetts resident?
If the non-Massachusetts employer conducts business or maintains an office in Massachusetts, the employer must deduct and withhold from wages the amount determined for Massachusetts income tax purposes, less any amount deducted and withheld for the employer's state. If there is no state withholding in the home state of the business, the employer withholds and remits the full amount determined for Massachusetts. Whether the employee works on the road, at home or in an office maintained by the employer does not affect the employer's withholding obligation.
A non-Massachusetts employer is not required to withhold if its only Massachusetts connection is the employment, outside Massachusetts, of a Massachusetts resident. The employer may withhold for the convenience of the employee if both employer and employee agree. The employee will owe Massachusetts income tax if the employer does not withhold state income taxes.
Example: Susan is single, lives in Springfield, Massachusetts, and works in Connecticut, where she earns $450 a week. The employer, which also has offices in Massachusetts, withholds $5.08 from her paycheck each week for Connecticut income taxes. Since Susan would have had $17.41 withheld from her weekly paycheck had she worked in Massachusetts, her employer withholds and remits an additional $12.33 to DOR.
Must an employer withhold on wages for Massachusetts if federal withholding is not required?
No. Generally, for employers, DOR follows the IRS guidelines for persons subject to withholding. If there is no requirement to withhold federal income tax because of the type of income, there is no requirement to withhold Massachusetts income tax
In particular, withholding by household (domestic) employers is
not required. However, domestic employers still are required to withhold Social Security tax from household employees. For more information about these requirements, contact the Internal Revenue Service toll-free at 800-829-1040. Household employers also should contact the Department of Unemployment Assistance at 617-626-5075 for information on their obligations for state unemployment taxes.
As a convenience to their employees, domestic employers do have the option to withhold federal and state income tax. Withholding income tax from wages may relieve domestic employees from having to pay estimated taxes. The Department has developed the Household Employment Tax Guide to provide household employers with the information they need to fully understand their obligations when hiring household help.
Are pension, annuity and other similar payments subject to withholding?
Yes. Payments of pension, annuity and other similar payments made to Massachusetts residents who have not elected to be exempt from U.S. income tax withholding are subject to Massachusetts income tax withholding.
Are lump sum and eligible rollovers from qualified pension and annuity plans subject to withholding?
Generally, lump sum and eligible rollovers that are subject to federal withholding also are subject to Massachusetts withholding, unless such distributions are of a type that would never be subject to Massachusetts personal income taxation. For more information, please see TIR 02-18, Tax Changes Contained in. or TIR 93-3, Massachusetts Income Tax Withholding on Eligible Rollover Distributions from I.R.C. s.401 Qualified Plans and s.403(b) Annuities .
How are such pension and annuity withholdings reported and paid?
The trustee or administrator of the pension or annuity plan must register with DOR online through WebFile for Business. using the plan's federal tax identification number and checking the appropriate box. Generally, a plan is required to obtain its own Federal Identification Number. Recipients of payments are required to file a Massachusetts Withholding Exemption Certificate for Pension, Annuity and Other Periodic Payments and Nonperiodic Payments (Form M-4P) with the trustee or administrator of the plan. Returns are due annually, and payments with the same frequency as wage withholding. (An annual report is required from each payer registered to withhold, whether or not the payer withheld Massachusetts taxes during the calendar year.) Returns and payments must be made electronically. Please see the "Filing and Payment Information" section of this guide for payment requirements.
Do special rules apply to employees of interstate motor and rail carriers?
Yes. Interstate rail and motor carrier employers are required to withhold Massachusetts income tax from their workers who are Massachusetts residents, and from their workers who are not residents of Massachusetts but who perform all their regularly assigned duties in Massachusetts. For more information, please see TIR 93-6, Employees of Interstate Motor and Rail Carriers .
What other types of withholding are required?
Venues, promoters or others who pay compensation to performers or performing entities are required to withhold on payments for athletes and entertainers who perform in Massachusetts. For more detailed information, please see A Guide to Withholding Taxes on Performers and Performing Entities
In addition, lottery winnings of $600 or more are subject to withholding even if withholding is not required under IRS guidelines.
Pass-through entities may be required to withhold on their members' distributive share. For more information, please see A Guide for Pass-Through Entities .
Information Employers Must Obtain from Employees
What information does an employer need to obtain from an employee for withholding purposes?
An employer needs to obtain the employee's full name, home address, Social Security number, the total number of exemptions, and any additional withholding amounts the employee requests to have withheld. Employees must report this information on an Employee's Withholding Allowance Certificate and on a Massachusetts Employee's Withholding Exemption Certificate (Forms W-4 and M-4). Claiming the proper number of exemptions prevents over- and under-withholding.
Should employees complete both Forms W-4 and M-4?
If the allowable Massachusetts withholding exemptions (see Form M-4) are different from U.S. withholding exemptions, employees must complete both Forms M-4 and W-4 for the most accurate withholding.
Can an employee change the number of his or her exemptions on Form M-4?
Yes. An employee may file a new certificate at any time if the number of exemptions increases. An employee must file a new certificate within 10 days if the number of exemptions previously claimed decreases.
How does an employee with two or more jobs calculate exemptions on Form M-4?
If an employee holds more than one job, he or she may claim exemptions only with his or her principal employer.
Can employees ask employers to withhold extra amounts of tax?
Yes. Employees who receive income that is not covered by withholding may request that their employer withhold additional amounts to pay the tax that will be due on that income.
Should an employer withhold on income from tips?
Yes. In accordance with federal tax rules, tips are considered to be part of an employee's pay and must be taken into account when determining the withholding amount. Employees must report tips from any one job totaling $20 or more in any given month to employers by the 10th day of the following month. The employer uses this reported amount to calculate withholding by adding the reported tips to the employee's pay.
How to Calculate Withholding from Wages
What are taxable wages?
Taxable wages include all compensation to an employee for services performed. Payments subject to Massachusetts withholding include wages, salaries, tips, commissions, bonuses, fees or any other item of value paid to an individual for services performed as an employee.
Are payments to employees for traveling or other reimbursable business expenses subject to withholding?
If such expenses are substantiated by the employee, and the amount in excess of the substantiated expenses is returned to the employer, then these payments are not subject to withholding. Such payments must be identified either by making a separate payment or by indicating the separate amounts if both wages and expense allowances are combined in a single payment. If the employee is not required to substantiate expenses or return excess payments, the payments must be included in the employee's wages, and are subject to withholding.
How is withholding calculated?
The amount of income tax withheld is based on the employee's taxable wages, the number of exemptions claimed, and any additional withholding amounts requested on the Massachusetts Employee's Withholding Exemption Certificate (Form M-4). Withholding is calculated either by using the tax tables available from DOR or by using a mathematical formula commonly known as the percentage method. These methods, which are explained in Income Tax Withholding Tables, ( Circular M
), may be applied on a daily, weekly, biweekly, semimonthly or monthly basis.
How do the withholding tables work?
The withholding tables provided in DOR's Circular M factor in the employee's wages for an applicable payroll period, the number of withholding exemptions claimed by the employee, and any additional withholding amounts requested by the employee on Form M-4 to determine the correct amount to withhold.
Example: Steve earns $565 a week as a construction worker. His wife Debby works full-time in real estate. They have three children, ages 14, 11 and 8. Steve and Debby decided to claim the exemptions for their children on Steve's M-4. Following is a copy of Steve's Form M-4. He is allowed a total of five exemptions: one for himself, three for his children, plus an additional exemption for having at least one child under age 12.
Steve's employer uses this information to calculate the correct amount to withhold from his weekly paycheck. Using the weekly table in Circular M, his employer withholds $19.44 from Steve's weekly paycheck.
An additional reduction of the withholding amount occurs if the taxpayer is filing as head of household and/or either the taxpayer or the taxpayer's spouse is blind. The withholding table amount should be reduced as follows if the taxpayer is filing as head of household and/or the blindness exemption is claimed: