The Complete Guide To Massachusetts Payroll Taxes

Massachusetts payroll can be complex because employers may need to handle federal payroll taxes, Massachusetts income tax withholding, unemployment insurance, Paid Family and Medical Leave contributions, and other employer requirements.

Massachusetts employers also need to follow state labor rules for minimum wage, overtime, paid sick leave, pay frequency, workers’ compensation, wage records, and new-hire reporting.

This guide breaks down the Massachusetts payroll taxes and labor laws small business owners need to know.

Does Massachusetts Have State Income Tax?

Massachusetts has a flat state income tax on most personal income, and employers generally must withhold Massachusetts income tax from employee wages.

For tax year 2026, Massachusetts’ personal income tax rate is 5% on most income, with an additional 4% surtax on taxable income over the state’s annual surtax threshold.

Massachusetts businesses may also owe corporate excise tax. The corporate excise tax is generally based on 8% of net income plus a property or net worth measure, with a minimum excise of $456. However, corporate excise tax is separate from payroll taxes.

Federal & State Payroll Taxes In Massachusetts

Massachusetts employers may need to handle federal payroll taxes, Massachusetts income tax withholding, unemployment insurance, Paid Family and Medical Leave contributions, and Employer Medical Assistance Contributions.

Massachusetts businesses may also be responsible for other business taxes, such as corporate excise tax, sales and use tax, property tax, or industry-specific excise taxes, but those are separate from payroll taxes.

Massachusetts State Tax Exclusions & Exemptions

Massachusetts has several personal and business tax exemptions, but most of those do not change an employer’s basic payroll responsibilities. Employers should be careful not to confuse individual income tax exemptions or corporate excise tax credits with payroll tax exemptions.

For payroll, exemptions usually depend on the worker’s classification, where the work is performed, the type of wages paid, and the specific tax involved. Some workers or payments may be treated differently for Massachusetts withholding, unemployment insurance, or PFML purposes.

Businesses should also confirm whether workers are properly classified as employees or independent contractors. Employers generally do not withhold payroll taxes for properly classified contractors, but contractors are still responsible for their own tax obligations.

So instead of relying on general Massachusetts tax credits or exemptions, employers should check the rules for each payroll tax specifically before assuming a worker or payment is exempt.

Massachusetts Labor Laws & Other HR Requirements

Massachusetts employers need to follow state and federal rules for wages, hiring, sick time, PFML, child labor, meal breaks, pay frequency, workers’ compensation, jury duty, and workplace discrimination.

How To Calculate Payroll Taxes In Massachusetts

Once you understand Massachusetts payroll taxes, running payroll comes down to collecting employee forms, calculating gross pay, withholding taxes, paying employer contributions, submitting filings, and keeping accurate records.

Step 1: Gather Employee Payroll Forms

Before running payroll, collect the forms and information needed to pay workers correctly.

For employees, this typically includes:

• Form W-4 for federal income tax withholding
• Massachusetts Form M-4 for state income tax withholding
• Form I-9 to verify employment eligibility
• Direct deposit information, if applicable
• Pay rate, pay schedule, classification, and deduction information

For independent contractors, businesses typically collect Form W-9 instead of employee payroll forms.

Step 2: Report New Hires

Massachusetts employers must report new hires and certain returning employees. New-hire reporting helps the state enforce child support orders and identify potential unemployment or public assistance fraud.

Employers can report new hires through MassTaxConnect. Employers with 25 or more employees generally must report new hires electronically.

Step 3: Calculate Gross Pay

Calculate each employee’s gross pay before taxes and deductions.

For hourly employees, multiply hours worked by the hourly rate and include overtime when required. For salaried employees, divide the annual salary by the number of pay periods.

Include bonuses, commissions, tips, PTO, reimbursements, and other taxable compensation when applicable.

Step 4: Calculate Taxes & Contributions

Massachusetts employers must withhold federal income tax based on Form W-4 and Massachusetts income tax based on Form M-4 and current state withholding guidance.

Employers and employees also pay FICA taxes. Social Security and Medicare apply at the federal level, and employers must also withhold Additional Medicare Tax from employee wages over the federal threshold when applicable.

Massachusetts employers may also need to pay unemployment insurance contributions, withhold or contribute to PFML, and pay EMAC if applicable. PFML contributions are handled through MassTaxConnect, and employers with 25 or more covered individuals generally must pay an employer share.

Step 5: Subtract Deductions

After calculating payroll taxes and contributions, subtract any required or employee-authorized deductions.

Common deductions include:

• Health insurance premiums
• Retirement plan contributions
• Wage garnishments
• Child support payments
• Union dues
• Other approved employee deductions

Step 6: Pay Employees & Submit Payroll Taxes

After calculating gross pay, taxes, deductions, and net pay, pay employees using an allowed payment method, such as direct deposit, paper check, or another approved method.

Massachusetts employers can use MassTaxConnect to file and pay certain state taxes. The old “MassTaxCollect” wording should be replaced with MassTaxConnect.

Federal payroll taxes can be paid through EFTPS.

Step 7: Keep Payroll Records

Keep payroll records organized and secure. Records should include employee names, Social Security numbers, addresses, pay rates, hours worked, pay periods, payment dates, deductions, and tax records.

The IRS generally requires employment tax records to be kept for at least four years. FLSA payroll records should generally be kept for at least three years, while wage calculation records, such as timecards and work schedules, should generally be kept for at least two years.

Massachusetts Payroll Tax & State Resources

For official guidance, use MassTaxConnect and the Massachusetts Department of Revenue for state withholding, PFML contributions, EMAC, business tax accounts, and payroll tax payments. Use the Massachusetts Department of Unemployment Assistance for unemployment insurance, and the Massachusetts Attorney General’s Fair Labor Division for wage, hour, sick time, final pay, and workplace law guidance.

For federal payroll rules, use the IRS for federal withholding, FICA, FUTA, and employer tax filing guidance, and the U.S. Department of Labor for FLSA wage, overtime, and recordkeeping requirements.

You can also check out our guide to payroll taxes, then find payroll software to help simplify your payroll.