Massachusetts imposes a flat 5% income tax on most income, but with two significant wrinkles that distinguish it from other flat-tax states. First, short-term capital gains and gains on collectibles are taxed at 8.5% - significantly higher than the standard 5% rate and higher than the federal long-term capital gains rate for most taxpayers. Second, the Massachusetts Millionaire Tax - a 4% surtax approved by voters in November 2022 - adds a 4% surcharge on all Massachusetts taxable income above $1 million, bringing the effective top rate to 9% for high earners. These two provisions make Massachusetts one of the more complex state income tax regimes for investors and high-income residents.
Standard income tax rate: 5% on wages, salaries, business income, long-term capital gains, qualified dividends, and most other income.
Short-term capital gains: 8.5% - applies to capital assets held 12 months or less, and to gains on collectibles regardless of holding period.
Millionaire Tax (Question 1 surtax): Additional 4% on Massachusetts taxable income exceeding $1,083,150 for 2026 (original $1,000,000 threshold from 2023, indexed annually for inflation per the Fair Share Amendment). Effective top rate: 9%.
Social Security: Exempt from Massachusetts income tax.
Most pension income: Massachusetts government pensions and most private pensions are exempt from Massachusetts income tax to the extent they are included in the pension exemption.
The 4% surtax applies to all income above the $1 million threshold - wages, capital gains, business income, retirement distributions. Unlike the federal additional Medicare tax, which applies only to investment income or earned income depending on type, Massachusetts applies the surtax to all income above the threshold. A Massachusetts resident who sells a business for $5 million owes 5% Massachusetts tax on the first $1 million and 9% on the remaining $4 million - an effective Massachusetts tax of approximately $410,000 on a $5 million gain. The surtax revenue is dedicated to education and transportation under the ballot initiative.
Massachusetts taxes short-term capital gains at 8.5% - gains from assets held 12 months or less. Long-term capital gains are taxed at the standard 5% rate. This creates a meaningful difference between Massachusetts and federal treatment: at the federal level, short-term gains are taxed as ordinary income; in Massachusetts, they are taxed at 8.5% regardless of the taxpayer's overall income level. Collectibles (art, coins, stamps, precious metals) are taxed at 8.5% regardless of holding period - parallel to the federal 28% collectibles rate but using Massachusetts-specific rules.