Massachusetts follows Internal Revenue Service guidelines for wages subject to withholding. Therefore, your employer does not have to withhold Massachusetts income tax from your wages if federal income tax withholding does not apply. Both federal and Massachusetts law view bonuses as taxable wages.
In Massachusetts, wages are taxed at 5.25 percent as of 2013. You are, however, allowed to claim withholding exemptions on Form M-4. You must complete Form M-4 if your withholding exemptions for Massachusetts income tax differ from your exemptions for federal income tax. On line 4 of the form, put the total number of withholding exemptions that you qualify for under state law.
To find your Massachusetts income tax withholding, your employer uses the state withholding tables, or Circular M. Say you are paid biweekly and receive a holiday bonus of $600, and you claim one allowance on your M-4. According to the Circular M’s biweekly tables, you would pay $21.25 in state income tax. If the bonus was for less than $300, the amount would be taxed at a flat 5.25 percent.
Your federal income tax withholding depends on how your employer pays the bonus. If it was paid with your regular wages, your employer combines the amounts and withholds as one payment. To find your withholding, your employer uses your W-4 form and the withholding tables in IRS Circular E. This process is similar to your Massachusetts income tax withholding. If the bonus was paid as a separate check, your employer may withhold at a flat rate of 25 percent, as of 2013. On bonuses over $1 million, your employer withholds the extra amount at the highest tax rate of 39.6 percent. For Medicare and Social Security taxes, as of 2013, your employer withholds respectively at 1.45 percent and 6.2 percent. You do not pay any Social Security tax on the bonus if the amount exceeds the annual wage limit of $113,700 as of 2013.
If you are self-employed and receive a bonus, it is a form of income. You may account for it yourself when you prepare your federal and state tax returns, or the company that gave you the bonus may give you a Form 1099-MISC. If your self-employment net income, which includes bonuses, equals $400 or more, you must file a federal return with the IRS. Residents of Massachusetts must file a state tax return if their annual gross income equals more than $8,000.
- Massachusetts Department of Revenue: A Guide to Withholding of Taxes on Wages
- Massachusetts Department of Revenue: Form M-4
- Massachusetts Department of Revenue: Massachusetts Circular E
- IRS.gov: 2013 Circular E, The Employer's Tax Guide
- Jackson Hewitt: Salesperson
- IRS.gov: Self-Employed Individuals Tax Center
- Massachusetts Department of Revenue: Frequently Asked Questions About Massachusetts State Income Taxes
- Massachusetts Department of Revenue: Notice of Personal Income Tax Rate Reduction for Taxable Years Beginning With 2012
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