It makes that each state has its own rules and regulations about income taxes. Most mirror the federal tax system, but some states tend to follow a different way of doing things. Thus, this can lead to many misconceptions and misunderstandings about the income tax system when it comes to filing state returns! So, let’s get some common myths about income tax in MA debunked, right from the experts at abc Payroll.
Working Out Of State.
State income taxes don’t only apply to residents! They also apply to nonresidents and part-year residents. How come? Most states require you to pay taxes on income earned while living in that state. Furthermore, the same goes for sources of income that are made within that state. Let’s break this down further.
If you live in Massachusetts but work in New Hampshire, you will own income tax to New Hamsphire despite not living there. But, in 2015, the U.S. Supreme Court ruled that two states cannot tax an individual on the same income.
So, both states cannot tax the individual on the earned income. It has to be one or another. Thus, Massachusetts cannot tax any of the revenue from New Hampshire just because you live in Massachusetts.
More Income Means More Taxes
It’s a common misconception that making it’s better to say no to a pay raise because it means you’ll pay more taxes on your income. This is false. The progressive tax rate system only taxes the individual on the amount earned within each tax bracket. Therefore, you aren’t losing money or making less by making more money!
Massachusetts adopted a flat income tax rate in 2020. What does this mean for residents and workers? The state is charging a flat 5% rate no matter how little or much you make. Thus, everyone is paying the same rate of taxes. Although, those who make very little money are not charged.
abc Payroll – Income Tax in MA.
Have any questions about payroll, income tax in MA, or bookkeeping? We’re a 30-year-old SOMWBA Certified Payroll, Tax, and Bookkeeping Company located near Boston, MA, servicing the entire North East. Contact us today for assistance at 978.251.3003.