Massachusetts is known as "Taxachusetts," but its system is more nuanced than the nickname suggests. Most income is taxed at a flat 5%, lower than in several neighbors. The catch is the 4% millionaire surtax on income above about $1.08 million, a corporate excise of 8% plus a property or net worth measure, and the highest LLC fees in the country at $500 a year.
This guide covers Massachusetts business taxes for 2026, with worked examples and planning tips.
Massachusetts business taxes at a glance
Most small business owners in Massachusetts pay a flat 5% on their profit, the same rate as wage earners. A C corporation pays 8% of net income plus a small tax on its property or net worth, with a minimum of $456. LLCs pay a $500 filing fee to form and $500 every year to maintain, regardless of income. Customers pay a 6.25% sales tax everywhere in the state, plus a local meals tax in many cities. Payroll costs include paid family and medical leave contributions. Owners who sell a business or earn over $1 million in a year face the 4% surtax on the excess.
Corporate excise
| Component | Rate |
|---|---|
| Income measure | 8% of net income attributable to Massachusetts |
| Property or net worth measure | $2.60 per $1,000 of taxable tangible property (or net worth for intangible property corporations) |
| Minimum excise | $456 |
Financial institutions pay 9%. Key points:
- Apportionment: Single sales factor with market-based sourcing.
- Combined reporting: Required for unitary groups.
- Credits: Investment tax credit for manufacturers, research credits and life sciences incentives.
- Returns: Form 355 is due on the 15th day of the fourth month after year-end.
S corporations
Massachusetts S corporations pay an entity-level tax if total receipts are $6 million or more: 2% of net income for receipts between $6 million and $9 million, and 3% above $9 million. All S corporations pay the property or net worth measure, with the $456 minimum.
Personal income tax and pass-through owners
| Income type | Rate |
|---|---|
| Most income, including business profit | 5% |
| Short-term capital gains | 8.5% |
| Surtax on income above about $1.08 million | Additional 4% |
The surtax, approved by voters in 2022, applies to all income above the indexed threshold, including capital gains from selling a business.
- LLC owners, partners and sole proprietors pay 5% on profit.
- S corporation shareholders pay 5% on their share, plus the surtax if their income is high enough.
- PTE excise: Massachusetts created an elective pass-through entity excise at 5% tied to the federal SALT cap. Check its status for 2026 given changes in federal law.
Sales and use tax
The sales tax rate is 6.25% statewide, with no local sales taxes except the optional 0.75% local meals tax.
- Groceries and clothing under $175 are exempt.
- Services are generally exempt, apart from telecommunications and some software.
- Remote sellers with more than $100,000 of Massachusetts sales must collect.
- Sales tax holiday: Massachusetts holds an annual sales tax holiday weekend in August.
Payroll and property taxes
- Paid Family and Medical Leave (PFML): About 0.88% of eligible wages in 2026, shared between employer and employee.
- Unemployment insurance: Employers pay on the first $15,000 of each employee's wages, plus a workforce training fund contribution and the Employer Medical Assistance Contribution (EMAC).
- Property tax: Cities and towns can tax commercial property at higher rates than residential property. Boston's commercial rate is more than double its residential rate.
Forming a business in Massachusetts: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $500 | $275 |
| Annual report | $500 | $125 |
| Minimum excise | None for LLCs taxed as partnerships | $456 |
| Registered agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Massachusetts corporate excise at 8% (income measure only) | $40,000 |
| Federal tax at 21% on $460,000 | $96,600 |
| Total income tax | $136,600 (27.3%) |
The property or net worth measure would be added. For a single LLC owner with $150,000 of Massachusetts income, state tax is about $7,500. At $75,000 it is about $3,750.
How Massachusetts compares with its neighbors
| State | Corporate rate | Top personal rate | Sales tax |
|---|---|---|---|
| Massachusetts | 8% plus property measure | 9% (5% below $1.08M) | 6.25% |
| New Hampshire | 7.5% BPT plus 0.55% BET | None on wages | None |
| Rhode Island | 7% | 5.99% | 7% |
| Connecticut | 7.5% | 6.99% | 6.35% |
| New York | 6.5% to 7.25% | 10.9% | 4% plus local |
| Vermont | 6% to 8.5% | 8.75% | 6% |
For owners earning under $1 million, Massachusetts's flat 5% is competitive with Connecticut and Rhode Island and well below New York. New Hampshire, with no wage income tax and no sales tax, draws businesses and residents from the Boston area.
Choosing an entity in Massachusetts
- LLC: Pays $500 a year in fees; owners pay 5% on profit.
- S corporation: Owners pay 5%, with possible federal payroll savings. Large S corporations pay entity-level tax.
- C corporation: Pays 8% plus 21% federally. Corporations have a lower annual report fee than LLCs.
Because of the $500 annual LLC fee, some very small businesses choose sole proprietorship or an S corporation instead.
Tax planning tips for Massachusetts businesses
Manage the surtax on a business sale. A $5 million gain would trigger roughly $160,000 of surtax. Spreading the sale over several years through an installment sale, or gifting shares to family members before a sale, can reduce the amount subject to the surtax. Plan before you sign a letter of intent.
Take advantage of life sciences incentives. The Massachusetts Life Sciences Center offers tax incentives for companies that create jobs in the state, including refundable credits.
Check PFML exemptions. Employers with private paid leave plans that meet state standards can apply for an exemption from contributions.
Who pays the most in Massachusetts
Three groups feel Massachusetts taxes most. Small LLCs pay $1,000 in the first year just to form and file the first annual report. Very high earners and business sellers pay the 9% combined rate on income above the surtax threshold. Capital-intensive corporations pay the property measure on top of the 8% income measure. Most other owner-operators pay a flat 5%, which is lower than many expect.
Recent changes for 2025 and 2026
- Millionaire surtax threshold indexed upward for 2026.
- Estate tax and other tax relief enacted in 2023 continues.
- PTE excise status tied to the federal SALT cap.
- PFML contribution rate adjusted for 2026.
Is Massachusetts a good state for business?
Advantages
- Flat 5% income tax for most owners
- World-class universities, hospitals and life sciences cluster
- Large venture capital ecosystem in Boston and Cambridge
- No local sales tax other than the meals tax
Drawbacks
- $500 formation and annual fees for LLCs
- 4% surtax on income over about $1.08 million
- High commercial property taxes in Boston
- High cost of labor and housing
Compliance checklist
- File a Certificate of Organization or Articles of Organization with the Secretary of the Commonwealth.
- Register with the Department of Revenue through MassTaxConnect for sales tax and withholding.
- Register for unemployment insurance and PFML if you hire.
- File the annual report with the Secretary of the Commonwealth.
- File Form 355, 355S or Form 3 each year.
- Pay the minimum excise or property measure where applicable.
Compare Massachusetts with its neighbors below or estimate your taxes in the United States calculator. See Corporation taxes for more.