Does Massachusetts Tax Social Security? A Guide to Retirement Taxes in MA
Introduction
As retirees plan their golden years, understanding how state taxes impact their income is crucial. One of the most common questions among retirees in Massachusetts is: Does Massachusetts tax Social Security benefits?
The good news is that Massachusetts does not tax Social Security benefits, provided they are already exempt at the federal level. However, other forms of retirement income, such as 401(k) withdrawals and private pensions, are subject to state taxation. Additionally, property taxes and estate taxes can significantly affect retirees' financial planning.
Does Massachusetts Tax Social Security Benefits?
No, Massachusetts does not tax Social Security benefits if they are exempt from federal taxation.
At the federal level, Social Security benefits may be taxed depending on your income. Specifically:
If your combined income (adjusted gross income + nontaxable interest + half of your Social Security benefits) is below $25,000 for single filers ($32,000 for joint filers), you pay no federal tax on Social Security.
If your combined income falls between $25,000 and $34,000 for single filers ($32,000–$44,000 for joint filers), up to 50% of benefits may be taxable.
If your combined income exceeds these limits, up to 85% of your benefits may be subject to federal taxation.
Since Massachusetts follows the federal exemption rules, retirees whose Social Security benefits are not taxed at the federal level will also be exempt from state taxation.
Do Retired People Pay Taxes in Massachusetts?
While Social Security is not taxed in Massachusetts, other forms of retirement income are. Here’s what retirees need to know:
Taxed Retirement Income
401(k) and IRA withdrawals: Taxed as ordinary income at the state’s flat income tax rate of 5%.
Pension income:
Massachusetts public pensions are tax-free.
Private and out-of-state public pensions are taxable at 5%.
Capital gains and dividend income:
Short-term capital gains (held for less than one year) are taxed at 12%.
Long-term capital gains are taxed at 5%.
Annuities: If an annuity is funded with pre-tax dollars (such as in a retirement plan), withdrawals are subject to 5% state income tax.
Rental income: If a retiree owns rental property, any income earned from it is taxable at 5%.
Part-time work or freelance income: Some retirees choose to work part-time or as consultants, and any earned income is subject to Massachusetts’ 5% income tax.
Other Taxes Retirees May Owe
Property tax: Seniors may still owe property tax, but Massachusetts offers property tax relief programs (covered below).
Sales tax: The Massachusetts sales tax rate is 6.25%, with no additional local taxes.
Estate tax: Massachusetts has an estate tax for estates valued at $2 million or more.
Excise tax: Massachusetts charges an annual motor vehicle excise tax based on the value of a retiree’s vehicle.
At What Age Do Seniors Stop Paying Property Taxes in Massachusetts?
Massachusetts does not eliminate property taxes for seniors, but there are tax relief programs available:
Senior Circuit Breaker Tax Credit
Eligible seniors can receive a tax refund of up to $2,500 (as of 2024) through this credit.
To qualify, you must:
Be 65 or older.
Own or rent a primary residence in Massachusetts.
Have an income below approximately $69,000 (single) or $103,000 (married).
Property Tax Deferral Programs
Some towns allow seniors to defer property tax payments until the home is sold. This can be a useful option for retirees on a fixed income, as it allows them to remain in their homes without the immediate burden of property tax payments. Interest may apply to deferred taxes, and repayment is required upon the sale of the home or transfer of ownership.
Additional Local Exemptions
Some Massachusetts municipalities offer local property tax exemptions for seniors, veterans, and disabled homeowners. These exemptions vary by town and may provide partial tax reductions or full waivers based on income and home value. Retirees should check with their local tax assessor’s office to see if they qualify for additional property tax relief.
At What Age Do Seniors Stop Paying Taxes?
There is no official age at which seniors completely stop paying taxes in Massachusetts. However, retirees can benefit from tax reductions and exemptions:
Social Security: Not taxed at the state level.
Public pensions: Massachusetts public pensions are tax-free.
Property tax relief: Available through credits and deferrals.
IRA/401(k) withdrawals: Still taxed as income.
Required Minimum Distributions (RMDs): Mandatory after age 73 and subject to taxation.
Strategic estate and tax planning can help retirees minimize taxable income.
What Taxes Do You Pay in Massachusetts?
Retirees in Massachusetts may be subject to the following taxes:
Income Tax
Flat rate of 5% on earned income, retirement account withdrawals, and private pensions.
Short-term capital gains taxed at 12%.
Property Tax
Rates vary by town, but the statewide average is about 1.2% of home value.
Sales Tax
6.25% statewide, with no local surcharges.
No sales tax on groceries, prescription drugs, or clothing under $175.
Estate Tax
Applies to estates worth $2 million or more.
Is Massachusetts a High-Tax State?
Massachusetts has a reputation for high taxes, but how does it compare to other states?
Higher than tax-free states (e.g., Florida, Texas, Nevada).
Lower than New York and California in certain categories.
Tax-friendly for retirees due to no Social Security tax and generous senior property tax credits.
Retirees who own property or have large estates may face higher tax burdens, but those with Social Security and public pension income enjoy significant tax savings.
Conclusion
Massachusetts is a moderately tax-friendly state for retirees. While the state does not tax Social Security benefits, it does tax IRA withdrawals, private pensions, and capital gains. Property tax relief programs and estate tax planning can help retirees reduce their overall tax burden.
For retirees looking to maximize their tax savings, strategic planning is key. Consider working with a retirement tax specialist to take full advantage of Massachusetts’ tax exemptions and credits.
FAQs
At what age do seniors stop paying property taxes in Massachusetts?
Seniors do not stop paying property taxes, but they may qualify for credits and deferrals.
Do retired people pay taxes in Massachusetts?
Yes, on IRA withdrawals, private pensions, and some capital gains.
At what age do seniors stop paying taxes?
No set age, but many exemptions apply for retirees.
What taxes do you pay in Massachusetts?
Income tax (5%), sales tax (6.25%), property tax (varies by town), and estate tax (on estates over $2 million).
Is Massachusetts a high-tax state?
Compared to tax-free states, yes. However, Massachusetts offers retiree-friendly exemptions.
