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Homebuyers moving to the Boston area should familiarize themselves not only with real estate property taxes, but also several other taxes that will impact the overall cost of relocating to Massachusetts. Besides real estate property taxes, Massachusetts has an income tax, a sales tax, an excise tax, and a tax related to the failure to obtain health insurance.
Real Estate Property Tax
In Massachusetts, property owners pay property tax. Local real estate taxes are generally based on the assessed value of the home itself, as well as the land it resides on. The boards of assessors in each city or town assess property taxes. Depending on the area, the assessors are either elected by the public or appointed by local governing bodies. Cities and towns issue property tax bills on a quarterly basis. Property taxes help to fund many municipal services, including public education, school transportation, libraries, parks and recreation, emergency services, and in some cases trash removal.
Personal Income Tax
Personal income tax in Massachusetts dropped from 5.2 percent in 2014 to 5.15 percent in January 2015. The tax rate is currently 5 percent. The tax rate is a flat tax, meaning everyone, no matter what their income, pays the same 5 percent rate. Both earned income (wages, salaries, tips, and commissions) and unearned income (interest, dividends, and capital gains) are taxed. The following people and entities must file a personal income tax return: individuals; nonresidents earning income in MA; estates of deceased MA inhabitants; and a “corporate trust” engaged in business in Massachusetts. While the state largely follows the federal rules for taxable income, there are a few exceptions. Interest income from state and local bonds (other than MA bonds) are taxable in Massachusetts, as well as income from foreign sources that may be excluded on your federal return. Some capital gains are taxed at 12 percent. Massachusetts has exemptions too. For example, a person can receive a $1,000 exemption for each dependent. The Massachusetts Department of Revenue has a list of exemptions available online.
Massachusetts Sales Tax
The sales tax in Massachusetts is 6.25 percent and it is imposed on the purchase price of many tangible goods, utilities, and telecommunications services as well as on meals served at restaurants. A city of town may also charge a local sales tax on the sales of restaurant meals up to 0.75 percent. Currently, residential electricity, gas, steam, and certain telecommunications charges are exempt from the sales tax. There are also various other product-based exemptions such as food, prescription medicines, certain medical products, and clothing (individual clothing items that exceed $175 or more are taxed). The Massachusetts Department of Revenue has a complete list of items that are and are not taxed. For many years, Massachusetts has held a tax-free weekend the second week of August. During this weekend, sales tax is waived on otherwise taxable non-business items. Exclusions include telecommunications services, tobacco, gas, steam, electricity, motor vehicles, motorboats, meals, and any single item that exceeds $2,500. Typically, the best back-to-school sales are reserved for this weekend.
Excise Tax
Chapter 60A of Massachusetts General Laws imposes an excise on the privilege of registering a motor vehicle or a trailer in the Commonwealth of Massachusetts. The excise is levied annually in lieu of a tangible personal property tax. Non-registered vehicles do remain subject to taxation as personal property. The excise is levied by the city or town where the vehicle is principally garaged and the revenues become part of the local community treasury. The Registry of Motor Vehicles prepares data for excise bills according to the information on the motor vehicle registration and sends it to city or town assessors. Cities and towns then prepare bills based on excise data sent by the Registry in conformity with Department of Revenue requirements.
Health Insurance, Penalty For Failure to Purchase
Massachusetts Health Care Reform Act requires most adults with access to affordable health insurance to obtain it. Failure to comply results in monthly penalties in the tax year. There is no penalty in the case of a gap in coverage of 63 consecutive days or less. Penalties are applied to an individual’s personal income tax return. The Massachusetts Health Connector has established standards that determine whether individuals, married couples, and families can afford health insurance based on their incomes and affordable health insurance premiums. If it is decided an individual, married couple, or family cannot afford health insurance according to the standards, they will not be penalized.
