Overview of Massachusetts Retirement Tax Friendliness
Massachusetts fully exempts Social Security retirement benefits, while taxing most other forms of retirement income. The Massachusetts estate tax has an exemption of just $2 million, which is one of the lowest in the U.S.
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Massachusetts Retirement Taxes
Planning a retirement in the Bay State? From Cape Cod to the Berkshire Mountains, there are many wonderful places to retire in Massachusetts, so long as you don’t mind a little snow.
The state’s tax system is similar to others in the region, in that it fully exempts Social Security retirement benefits while taxing most other forms of retirement income. Retirees for whom Social Security is the primary or sole source of retirement income will therefore face a fairly low tax bill. However, given the state’s high cost of living, living off Social Security alone in Massachusetts may be difficult.
A financial advisor can help you plan for retirement and other financial goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Is Massachusetts tax-friendly for retirees?
Massachusetts is moderately tax-friendly for retirees. It fully exempts Social Security retirement benefits and income from most public pension funds from taxation.
On the other hand, other types of retirement income receive no exemptions or deductions. Income of up to $1 million from an IRA, 401(k), 403(b) or any other type of retirement savings account is taxed at the state income tax rate of 5%, while income that exceeds $1 million is subject to an extra 4% tax. Income from a non-public employer pension is also taxable.
Also of note: The Massachusetts estate tax has an exemption of just $1 million, which is the lowest threshold in the U.S.
Is Social Security taxable in Massachusetts?
Retirees do not need to pay income taxes on their Social Security income in Massachusetts.
Are other forms of retirement income taxable in Massachusetts?
Income from any public employer pension (for example, the Massachusetts Teachers’ Retirement System) is exempt, but all other types of retirement income are taxable. If you plan on receiving income from a 401(k), IRA or non-public pension, keep in mind that you will pay the state tax rate of 5% on most of that income.
How high are property taxes in Massachusetts?
The median effective property tax rate in Massachusetts is 1.19% of a home value, but it’s important to keep in mind that Massachusetts has one of the most expensive overall housing markets in the country. The state’s median home value is $424,700, about 50% more than the national median.
As a general rule, prices rise as you head east. Cape Cod has among the priciest housing markets in the country. Boston and its suburbs are also relatively expensive. Home prices in the western half of the state are not as high, though.
What is the Massachusetts Circuit Breaker Credit?
Some seniors in Massachusetts are eligible for the Real Estate Tax Credit for Persons 65 and Older, also called the Circuit Breaker Credit. The credit refunds all property taxes paid, up to a maximum of $2,590. To be eligible, a senior has to meet four requirements.
First, the claimant must be at least 65 years old by Jan 1. Next, the claimant must own or rent his or her home and occupy it as a primary residence. Also, the claimant must have total income under $69,000 as a single filer, $86,000 as a head of household or $103,000 if filing jointly. (You are not eligible for the credit if you file as married filing separately.) Lastly, the assessed value of the home must be no more than $1,025,000.
How high are sales taxes in Massachusetts?
Massachusetts sales taxes are slightly lower than average. The statewide rate is 6.25%, and there are no local or county taxes. There are a number of important exemptions to the sales tax. Groceries are exempt, as are clothing items costing less than $175. Prescription drugs are also exempt.
What other Massachusetts taxes should I be concerned about?
The Massachusetts estate tax is one of the steepest in the nation. The exemption is $2 million, as compared to the federal exclusion of $12.92 million in 2023 and $13.61 million in 2023. Estates worth more than $2 million are subject to tax rates that begin at 0.8% and increase to 16%.
