Who Pays the Highest Taxes in Massachusetts?

Massachusetts has a relatively high tax burden compared to other states, with certain groups of taxpayers paying significantly more than others. High earners, self-employed individuals, property owners, and investors tend to face the highest taxes due to income taxes, capital gains taxes, and property taxes.

1. High Earners

With the introduction of the Massachusetts Millionaire Tax, individuals earning over $1 million annually pay an additional 4% surtax on income exceeding that threshold, on top of the standard 5% state income tax. This means high-income earners in the state face a 9% tax rate on income over $1 million—one of the highest in the country.

2. Self-Employed Individuals

Freelancers, independent contractors, and business owners must pay self-employment taxes, which include both state income tax and federal self-employment tax (15.3%). Unlike W-2 employees who share payroll taxes with their employers, self-employed individuals must cover the full Social Security and Medicare contributions, making their overall tax burden higher.

3. Property Owners

Massachusetts has some of the highest property taxes in the country, with an average effective rate of 1.23%, but this varies by location. Cities like Boston, Newton, and Cambridge have higher property values, leading to significant tax bills for homeowners. Additionally, rental property owners must pay taxes on rental income, further increasing their tax obligations.

4. Investors and Capital Gains Taxpayers

Massachusetts taxes short-term capital gains (assets held for less than a year) at a 12% rate, one of the highest in the U.S. Long-term capital gains, such as profits from stocks or real estate held for over a year, are taxed at the standard 5% rate, but the total tax liability can still be substantial for high-income investors.

How to Reduce the Tax Burden

To minimize tax liability, high earners and investors can use strategies such as:

• Income deferral to spread earnings across multiple years.

• Trust planning to protect assets.

• Charitable donations for tax deductions.

• Establishing residency in a lower-tax state for long-term relief.

Conclusion

Massachusetts has a high tax burden, particularly for millionaires, self-employed individuals, property owners, and investors. Understanding these tax implications and planning strategically can help taxpayers minimize their overall liability.