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 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 - and long-term gains on collectibles are taxed at 12% subject to a 50% deduction. 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. Long-term gains on collectibles are taxed at 12%, subject to a 50% deduction.
Millionaire Tax (Question 1 surtax): Additional 4% on Massachusetts taxable income exceeding $1,107,750 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: Contributory pensions of the United States, Massachusetts, or its political subdivisions, and US uniformed-services retirement pay, are exempt from Massachusetts income tax; most private pension income is taxable, with only the recovery of amounts previously taxed excluded.
The 4% surtax applies to all income above the indexed $1 million threshold ($1,107,750 for 2026) - 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 $1,107,750 and 9% on the remaining $3,892,250 (2026 threshold) - an effective Massachusetts tax of approximately $405,690 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. Long-term gains on collectibles (art, coins, stamps, precious metals) are taxed at 12%, subject to a 50% deduction (short-term collectibles gains are taxed at 8.5%) - parallel in concept to the federal 28% collectibles rate but using Massachusetts-specific rules.