Massachusetts LLC Taxes

Forming a Massachusetts limited liability company (LLC) involves meeting various tax obligations, which depend on your LLC’s tax classification, the type of business you run, and where you operate.

This guide will cover the main Massachusetts LLC Taxes that you may need to file and pay at the local, state, and federal levels, as well as the steps and the best practices for filing them.

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes.

How Is an LLC Taxed in Massachusetts?

Taxation in Massachusetts isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay self-employment tax or FICA tax on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Massachusetts to help you ensure your LLC navigates them effectively.

Massachusetts Local Taxes

Massachusetts has different local tax regulations depending on the city or town, including some special taxes that apply only in the Commonwealth. Check out the local taxes that may affect your LLC in the following sections.

Local Option Taxes

These are taxes that cities and towns can choose to adopt, with the approval of the local legislative body and sometimes the voters. Some examples are:

• Meals Tax: A local option tax of up to 0.75% on the sale of restaurant meals, in addition to the state sales tax of 6.25%.
• Room Occupancy Tax: A local option tax of up to 6% (6.5% for Boston) on the rent of hotel rooms, in addition to the state excise tax of 5.7%.
• Short-Term Rental Tax: A local option tax of up to 6% on the rent of short-term rentals, such as Airbnb, in addition to the state excise tax of 5.7%.
• Recreational Marijuana Tax: A local option tax of up to 3% on the sale of recreational marijuana, in addition to the state excise tax of 10.75% and the state sales tax of 6.25%.
• Community Preservation Act Surcharge: A local option surcharge of up to 3% on the real estate tax bill to fund projects related to open space, historic preservation, affordable housing, and recreation.

Note: You can use and download the adoption timetable for all local option excise taxes. 

Municipal Property Taxes

If your LLC owns real or personal property in Massachusetts, you should be aware of property taxes. Every January 1st, local assessors in each city and town classify real properties into four classes according to their use: residential, open space, commercial, and industrial. 

Keep in mind that personal property, which includes items like furniture, machinery, tools, and animals, is a separate category and is treated as a class for tax purposes. 

The property tax rate varies depending on the town or city, where each town determines its own property tax rate by class and publishes a new rate every year. Some towns have higher rates than others; for example, Longmeadow has the highest rate at 22.92 per $1,000 of assessed value, while Edgartown has the lowest rate at 2.52 per $1,000 of assessed value.

Note: If you have any questions about your individual property tax bill, reach out to your county assessor. You can also use the Massachusetts Interactive Property Map to view property boundaries and assessment data for any parcel in the state.

Motor Vehicle Excise Tax

If you own a registered motor vehicle or trailer in Massachusetts, you will have to pay the motor vehicle and trailer excise every year unless exempted. 

The excise rate is $25 per $1,000 of your vehicle's value, charged for a full calendar year, and issued by the community where the vehicle is usually garaged or parked. However, if your vehicle is registered in Massachusetts but parked outside the state, then the Commissioner of Revenue will send you the bill. 

If you've registered your vehicle for less than a full calendar year, you'll have to pay the excise based on the month of registration and the remaining months of the year. For example, if you registered your vehicle on April 9th, you'll be billed for April through December. 

Note: Your vehicle's value for excise purposes isn't the actual purchase price or book value. Instead, it's a percentage of the manufacturer's list price in the year of manufacture. Also, if the calculated excise is less than $5, you'll be taxed $5, which is the minimum motor vehicle excise.

Recommended Service: Schedule a free consultation with 1-800Accountant to ensure your business remains legally compliant. 

Massachusetts State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Massachusetts. 

Personal Income Tax

If you live and work in Massachusetts and earn income, you will be subject to the Massachusetts personal income tax. For the current tax year, the tax rate is set at 5% for both earned and unearned income, except for specific capital gains that are taxed at 12%. 

When it comes to filing your personal income tax return, the appropriate form will depend on your residency status. If you are a full-year resident, you should use Form 1, while part-year and nonresidents should use Form 1-NR/PY.

LLCs that are pass-through entities by default do not pay income taxes themselves, but the owner or member reports the LLC’s income and expenses on their personal tax return. 

Corporate Income Tax

Massachusetts’ corporate income tax is levied on the gross taxable income of most businesses and corporations registered or doing business in the Commonwealth. If your LLC elects to be treated as a corporation, you will file a corporate income tax return (Form 355) based on its taxable net income and either its tangible property or its net worth. The minimum tax is $456.

The current rate is 8% for all types of income, such as long-term capital gains, interest, wages, and other income. This is a flat rate, meaning that it does not change based on the amount of income or the type of business entity.

Withholding Tax

As an LLC with employees in Massachusetts, you have to pay withholding tax on the income you pay to your employees. This tax applies to both residents and nonresidents who work for you in or outside the state.

The withholding tax rate is 5% for most types of income; however, you have to pay 12.00% for short-term capital gains and long-term gains on collectibles.

In addition, you are responsible for withholding and remitting this tax to the Massachusetts Department of Revenue. You also have to file and pay withholding taxes regularly based on how much tax you withhold.

Note: For more information, check out the updated Massachusetts Circular M Income Tax Withholding Tables. These tables are used by employers to calculate the amount of income tax to withhold from their employees’ wages based on their payroll period and the number of exemptions. 

Sales and Use Taxes

The sales and use taxes are imposed on the sale or use of tangible personal property and certain services in Massachusetts. The sales tax is collected by the seller and paid by the buyer at the time of purchase, while the use tax is paid by the purchaser directly to Massachusetts when the sales tax was not collected or was lower than the rate. 

The rates for both sales and use taxes are 6.25% of the sales price or rental charge. However,  there are some exemptions for items such as food, clothing, health care, and education.

Consider that there is no local sales and use tax in Massachusetts. The state sales and use tax rate is fixed for all cities and counties in Massachusetts. Furthermore, there are no additional local taxes on top of the state rate.

Note: If your LLC sells taxable goods or services in Massachusetts, you must obtain a sales and use tax registration certificate from the Department of Revenue and display it at your place of business. 

State Excise Taxes

These excise taxes are imposed by Massachusetts on certain goods and services. They are usually collected by the seller or provider and reported to the Commonwealth and not the federal government. 

• Corporate Excise: The rate is 8% of the net income apportioned to Massachusetts and $2.60 per $1,000 of the net worth allocable to the Commonwealth.
• Room Occupancy: The state rate is 5.7%, and localities can add their own rates up to 6.5%. There are also additional taxes for convention center funding (2.75% in some cities) and water protection funds (2.75% in Cape Cod and Islands). 
• Short-Term Rental Tax: It applies to the same rates and fees as the room occupancy tax, plus a community impact fee of up to 3% for certain properties. 
• Alcoholic Beverage: The rates vary depending on the type and volume of the beverage. For example, the rate for beer is $0.11 per gallon, for wine is $0.55 per gallon, and for liquor is $4.05 per gallon. 
• Cigarette And Tobacco: The rate for cigarettes is $3.51 per pack of 20, and the rate for other tobacco products is 40% of the wholesale price. 
• Motor Fuel: The rate is $0.24 per gallon for both gasoline and diesel used on the highway. 
• Satellite Service: The rate is 5% of the gross receipts from the sale of direct broadcast satellite service, such as Dish Network or DirecTV.
• Recreational Marijuana: The state rate is 10.75%, and localities can add their own rates up to 3%, plus the state sales tax rate of $6.25.

Note: See the section on Massachusetts Property and Excise Taxes, which contains information about various types of property and excise taxes that are administered by the Massachusetts Department of Revenue and/or your city/town. 

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as separate entities from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment taxes on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employer Taxes

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in Massachusetts

Below, we’ve outlined the general process an LLC in Massachusetts will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Federal Tax Identification Number or Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State Tax Returns: You can pay your state business taxes online through MassTaxConnect, a portal that allows you to file and pay various types of taxes. If you qualify, you may also be able to e-file your personal income tax return for free through the Free File Alliance Program, which offers several vendor options. 
• Local Tax Returns: You can also file and pay your local option taxes and local excise taxes via the MassTaxConnect portal. For property taxes, you can file and pay them online through your city or town’s website, or by mail or in person at their local collector’s office.

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your Massachusetts LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Massachusetts LLC Annual Report

Massachusetts LLCs are required to file an annual report every year before their anniversary date, which is the date when your LLC was formed in Massachusetts. 

The report includes your LLC’s information, such as its name and EIN, business address, purpose, members, and/or managers. 

The filing fee for the annual report is $500 by mail or $520 online. If you fail to file the report by the deadline, your LLC will not be in good standing and will be marked delinquent. 

If you continue to ignore this requirement, the state will dissolve or shut down your LLC. There are no penalties for LLCs that file an annual report late; however, the penalty for failing to file a report altogether is administrative dissolution after two years.

Licensure and Tax Requirements

In Massachusetts, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales and Use Tax Registration Certificate: If your LLC sells tangible personal property or certain services in Massachusetts, you must obtain a sales and use tax registration certificate that allows you to collect sales tax from the buyer and remit it to the Massachusetts Department of Revenue.
• Professional Licenses: If your LLC provides professional services that require a state license, such as medicine, law, engineering, etc., you must form a professional LLC (PLLC) and obtain a certificate from the relevant regulating board. 
• Environmental Permits: If your LLC partakes in activities that may affect the environment, such as discharging wastewater, emitting air pollutants, handling hazardous waste, etc., you must apply for the appropriate permits and certifications from the Massachusetts Department of Environmental Protection (MassDEP). 

Note: To ensure that your LLC has all the necessary licenses and permits required by the state of Massachusetts, it's recommended to check out the Massachusetts Business Licenses & Permits page on the official state website.

Massachusetts LLC Taxes FAQs