Massachusetts Withholding Tax: Rates, Deadlines, and Penalties

Massachusetts withholding tax is the state income tax that employers deduct from employee paychecks and send to the Department of Revenue. The standard rate is 5% of taxable wages, and a 4% surtax applies to annualized pay above $1,107,750 in 2026.¹ Taxable wages include salaries, hourly pay, bonuses, commissions, tips, and fees.²

Who Has to Withhold

Every employer paying wages for services subject to Massachusetts income tax must deduct and withhold.³ “Employer” covers any individual, corporation, partnership, or organization that someone performs services for as an employee, and the obligation applies to salary, hourly, and commission-based pay alike.

Both Massachusetts residents and non-residents performing services in the state are covered. An employer without a physical Massachusetts office may still have to withhold when its employees work here, and the DOR allows voluntary withholding for Massachusetts residents working elsewhere if they request it.²

Withholding applies only to employees, not to independent contractors. Massachusetts uses a strict three-prong test for that distinction, and misclassifying an employee as a contractor exposes a business to unpaid employment taxes, back wages, and other liabilities.⁴

How Much Comes Out of Each Paycheck

Three things drive the number: the employee’s taxable wages for the period, the exemptions claimed on Massachusetts Form M-4, and whether the employer uses the percentage method or the wage-bracket tables in the DOR’s annual Circular M.² The tables cover daily, weekly, biweekly, semimonthly, and monthly pay cycles at the 5% rate.¹

Bonuses, Commissions, and the 4% Surtax

Supplemental wages follow a separate calculation. The employer annualizes the employee’s regular wages plus the supplemental payment to see which rate applies. If the combined figure is $1,107,750 or less, the full supplemental amount is withheld at 5%. If it exceeds the threshold, the portion above $1,107,750 is withheld at 9% (the 5% rate plus the 4% surtax), while the portion below stays at 5%.¹ The $1,107,750 figure is the 2026 inflation-adjusted trigger.⁵

When Employers Pay the DOR

Before withholding anything, an employer registers with the DOR as a withholding agent through MassTaxConnect.³ After that, the payment schedule is set by expected annual withholding volume. Four tiers apply:

Annual (Type 1), for total withholding of $100 or less per year: due by January 31 of the following year.
Quarterly (Type 2), for $101 to $1,200 per year: due by the last day of the month following each quarter.
Monthly (Type 3), for $1,201 to $25,000 per year: due by the 15th of the following month, except in quarter-ending months (March, June, September, December), when the deadline is the last day of the following month.
Quarter-monthly (Type 4), for more than $25,000 per year: due within three business days after the end of any quarter-monthly period in which the cumulative unremitted balance reaches $500 or more.

Those categories come from the DOR’s withholding regulation.⁶ Employers report what they withheld on Form M-941.⁷ Businesses filing 50 or more quarterly wage reports must file and pay electronically through MassTaxConnect.⁸

By January 31 of the following year, every employee must receive a W-2 showing total wages and taxes withheld. When January 31 lands on a weekend or legal holiday, the deadline shifts to the next business day.⁹

What Employees Should Do

When you start a job, complete Form M-4 so your employer knows how many exemptions to apply. Skip the form and your employer must withhold as if you claimed zero, which pulls more tax out of each paycheck than you probably owe.¹⁰ If you marry, have a child, or pick up substantial side income midyear, send your employer an updated M-4. The same form lets you request additional per-paycheck withholding if you expect the standard tables to leave you short.

Withholding only covers wages. If you have meaningful income that isn’t withheld on — rental income, freelance work, investment gains — you may owe quarterly estimated payments directly to the DOR.¹¹ An underpayment penalty kicks in when your balance due at filing exceeds $400. It is calculated at the federal short-term interest rate plus four percentage points, compounded daily.¹² Checking your pay stubs through the year is the easiest way to catch a shortfall before penalties build up.

Penalties for Missing a Deadline

Employers who file late face a penalty of 1% of the unpaid tax for each month or partial month the return is overdue, capped at 25%. A separate 1% per month penalty applies if you file on time but pay late, also capped at 25%.¹³ On top of penalties, the DOR charges interest at the federal short-term rate plus four percentage points, compounded daily. Interest cannot be waived or abated.¹⁴

Personal Liability for Owners and Officers

The corporate shield does not protect you here. If a corporation, partnership, or LLC fails to remit withheld taxes, the DOR can pursue the individuals who controlled the money. Under the responsible persons statute, anyone with authority to decide which bills got paid, who chose not to pay the withholding tax, becomes personally liable for the full amount.¹⁵

The DOR looks at who controlled business finances, directed how funds were disbursed, or could have prevented the liability from building. Reach is broad. A lender or outside manager who steered cash away from tax payments can be held responsible, even without an ownership stake or officer title.¹⁶ Withheld taxes are treated as money the employer holds in trust for the state.

Non-Residents and Remote Work

Non-residents who perform services in Massachusetts owe state income tax on what they earn here, and their employers must withhold on that pay.³ The sourcing rule is simple: income from employment carried on in the Commonwealth is Massachusetts source income regardless of where the employee lives.¹⁷ For employees who split their work between Massachusetts and another state, employers may need to apportion withholding based on the number of days actually worked in the state versus elsewhere, so tracking in-state workdays matters.

1
Mass.gov. Massachusetts Circular M – Income Tax Withholding Tables at 5.0% Effective January 1, 2026
2
Mass.gov. Withholding Taxes on Wages
3
General Court of Massachusetts. Massachusetts Code Chapter 62B – Section 2
4
General Court of Massachusetts. Massachusetts Code Chapter 149 – Section 148B
5
Mass.gov. Massachusetts 4% Surtax on Taxable Income
6
Mass.gov. 830 CMR 62B.2.1 – Withholding of Taxes on Wages and Other Payments
7
Mass.gov. Form M-941 Instructions for Tax Return of Income Taxes Withheld
8
Mass.gov. DOR E-Filing and Payment Requirements
9
Social Security Administration. Deadline Dates to File W-2s
10
Mass.gov. Form M-4 Massachusetts Employee’s Withholding Exemption Certificate
11
General Court of Massachusetts. Massachusetts Code Chapter 62B – Section 13
12
Mass.gov. Massachusetts DOR Personal Income and Fiduciary Estimated Tax Payments
13
General Court of Massachusetts. Massachusetts Code Chapter 62C – Section 33
14
Mass.gov. Massachusetts Penalties and Interest Assessed by DOR
15
General Court of Massachusetts. Massachusetts Code Chapter 62C – Section 31A
16
Mass.gov. Directive 02-1 – Liability Under the Responsible Persons Statute, G.L. c. 62C, s. 31A
17
Mass.gov. 830 CMR 62.5A.3 – Massachusetts Source Income of Non-Residents Telecommuting Due to the COVID-19 Pandemic