Current through Register 1518, March 29, 2024
(1)
Statement of Purpose, Effective Date, Outline of Topics.
(a)
Statement of Purpose.
830 CMR
62B.2.1 explains the requirements of employers and
other persons to withhold the Massachusetts income tax on wages and payments, as
required by M.G.L. c. 62B, §§ 1 through 12.
(b)
Effective Date. All
sections of
830 CMR
62B.2.1 except
830 CMR
62B.2.1(6) are effective as of
November 18, 2005.
830 CMR
62B.2.1(6) is effective for
taxable years beginning on or after January 1, 2006.
(c)
Outline of Topics.
830 CMR
62B.2.1 is organized as follows:
1. Statement of Purpose
2. Definitions
3. Income Subject to Withholding
4. Employers and Other Persons Required to
Withhold; Amount to Withhold
5. Employer
and Employee Reporting Obligations
6.
Registration and Reporting Obligations of Payers of Compensation to Performers or
Performing Entities; Reporting Obligation of Performing Entity
7. Returns and Payments
8. Methods of Calculation
9. Multiple Withholding
10. Pensions, Annuities, and other Retirement
Arrangements
11. Fringe
Benefits
12. Interest and
Penalties
13. Credit Against
Taxes
(2)
Definitions. For purposes of
830 CMR
62B.2.1, the following terms shall have the
following meanings, unless the context requires otherwise:
Code. The Internal Revenue Code of the
United States in effect for the applicable year.
Commissioner. The Commissioner of the
Massachusetts Department of Revenue, or the Commissioner's duly authorized
representative.
Employer. The same meaning as defined in
the Internal Revenue Code § 3401(d).
Employee. The same meaning as defined in
the Internal Revenue Code § 3401(c), except full-time students engaged in
seasonal, temporary or part-time employment whose estimated annual income does not
exceed $2,000.
Performance. An event in which a performer
or performing entity receives compensation for personal services performed in,
derived from, or connected with sources within Massachusetts by competing,
demonstrating, exhibiting, entertaining or educating an audience, making a public
appearance, or endorsing merchandise.
Performer. A performer may be:
(a) an athlete such as a wrestler, boxer, golfer,
tennis player, sports team member or other athlete who is paid for competing,
demonstrating, making a public appearance, or endorsing merchandise, as well as a
person paid to further an athlete's performance or an athletic event, performing
services such as owner or leader of a performing entity; agent or manager of a
performing entity or performer; referee, coach, or trainer; member of a production
crew; or
(b) a paid entertainer or
speaker, such as an actor, singer, musician, dancer, circus performer, comedian,
celebrity, public speaker or lecturer, as well as any person paid to further an
entertainer's or speaker's performance such as owner or leader of a performing
entity; agent or manager of a performing entity or performer; or writer, director,
coach, designer, or member of a sound, light, stage or production crew.
Performing Entity. A corporation,
partnership, limited partnership, limited liability company, corporate trust or
other entity that employs, engages, or comprises one or more performers.
Promoter. A person, association,
corporation, partnership, limited partnership, limited liability company, corporate
trust or other entity that organizes, produces, or sponsors a performance.
Quarter-monthly Period. The first seven
days of a calendar month, the eighth through the 15th day
of a calendar month, the 16th through the
22nd day of a calendar month, or the
23rd through the last day of a calendar month.
Seasonal Employer. An employer that is
required to deduct and withhold Massachusetts income tax and that regularly has no
withholding tax liability in the same one or more calendar months each year.
Taxpayer. Any person or entity subject to
the tax imposed by M.G.L. c. 62 or M.G.L. c. 62B, including individuals, trustees
and other fiduciaries, estates and corporate trusts, and employers or other entities
required to withhold tax.
Transacting Business within the
Commonwealth. Having or maintaining within this state, directly or
indirectly, an office, distribution house, sales house, warehouse, or other place of
business, or otherwise operating or engaging in business within this state by or
through any agent or other representative under the authority of the
employer.
Wages. For withholding purposes only, wages
as defined in Code § 3401(a), periodic payments and nonperiodic distributions
as defined in Code § 3405 and subject to federal withholding, and contributions
paid by the employer on behalf of the employee pursuant to M.G.L. c. 32, §
22(10) or pursuant to M.G.L. c. 32, § 65D(i) and not otherwise included as
wages.
(3)
Income Subject to Withholding.
(a)
Income Subject to
Withholding. Employers and other withholders are required to withhold
an amount from wages or payments that is substantially equivalent to the tax amount
reasonably anticipated to be due, according to tables promulgated by the
Commissioner. Generally, income is subject to Massachusetts income tax withholding
if:
1. it is taxable under the Massachusetts
personal income tax law; and
2. it falls
into one of the following categories:
a. wages for
federal withholding purposes under Code § 3401(a);
b. periodic payments and nonperiodic distributions
as defined in Code § 3405 and subject to federal withholding;
c. employer pension contributions by governmental
units and free public libraries as provided in M.G.L. c. 32, § 22(10) and
payments by governmental units for retirement pay of judges appointed on or after
January 2, 1975, as provided in M.G.L. c. 32, § 65D(i); or
d. payments made as compensation in any form for
performances by performers, including payments to individuals as independent
contractors and payments to performing entities.
(b)
Remuneration Excluded from
Withholding. Certain types of income are excluded from the federal
definition of wages under Code § 3401(a) and accordingly are not subject to
withholding in Massachusetts. While 830 CMR 62B.2.1 does not reflect changes made to
Code § 3401(a) after November 18, 2005, Massachusetts automatically adopts such
changes. As of November 18, 2005, Code § 3401(a) excludes from withholding
remuneration paid:
1. for certain armed forces
service during active combat zone service;
2. for certain agricultural labor if the worker is
paid in a medium other than cash or the employee earns less than $150 annually and
other conditions are met;
3. for
domestic service in a private home;
4.
for certain service not in the course of the employer's trade or business;
5. for services by a United States citizen or
resident for a foreign government or an international organization as defined in
Code § 7701(a)(18);
6. for certain
services performed by certain non-resident alien individuals;
7. (intentionally omitted because omitted from
Code § 3401(a));
8. for certain
services performed by United States citizens living abroad;
9. for certain services performed by a minister or
religious leader;
10. for certain
services performed by a newspaper delivery person under the age of 18;
11. for certain services not in the course of the
employer's trade or business paid in a medium other than cash;
12. to, or on behalf of, an employee or an
employee's beneficiary:
a. from or to a trust
described in Code § 401(a);
b.
under or to a Code § 403(a) annuity plan;
c. for a payment described in Code §
402(h)(1) and (2) if it is reasonable to believe that the employee will be entitled
to an exclusion;
d. under an arrangement
to which Code § 408(p) applies;
e.
under or to an eligible deferred compensation plan under Code § 457(b) (for
distributions after December 31, 2001);
13. pursuant to certain service performed under
the Peace Corps Act;
14. in the form of
group-term life insurance on the life of an employee;
15. to or on behalf of an employee for certain
moving expenses that are reasonably expected to be deductible under Code §
217;
16. as tips if the employee
receives tips in a medium other than cash or receives less than $20 in tips in a
calendar month in the course of employment with one employer;
17. for certain service on a fishing boat
described in Code § 3121(b)(20);
18. for payments or benefits to an employee that
are reasonably expected to be excluded from income under Code § 127
(educational assistance programs) or Code § 129 (dependent care assistance
programs) or Code § 134(b)(4) (dependent care assistance programs as a
qualified military benefit);
19. for
benefits that are reasonably expected to be excluded from income under:
a. Code § 74(c) (certain employee achievement
awards);
b. Code § 117 (qualified
scholarships);
c. Code § 132
(certain fringe benefits);
20. for medical care reimbursement paid under a
self-insured medical reimbursement plan as defined in Code §
105(h)(6);
21. for certain contributions
to or for the benefit of an employee under a medical savings account as defined in
Code § 106(b).
22. any payment to
or for the benefit of an employee if the employee could exclude the payment from
income under Code § 106(d) (contributions to health savings accounts).
(c)
Differences
between Withholding Requirement and Taxability. A determination of the
requirement to withhold is not the same as a determination of taxability.
Differences between withholding requirements and taxability occur for two reasons.
First, income may be taxable in Massachusetts but not subject to withholding, either
because it is excluded from the definition of wages for withholding purposes, or
because of differences between federal and state taxable income. Second,
Massachusetts withholding law is based on the current Code, while taxation of income
is generally based on the Code as of a certain date. Because of these differences
between withholding requirements and taxability, employers may meet their
withholding obligations yet employees may still be required to pay estimated taxes
or agree to additional withholding in order to avoid the imposition of underpayment
penalties.
830 CMR
62B.2.1 addresses only withholding requirements.
(4)
Employers and
Other Persons Required to Withhold; Amount to Withhold.
(a)
Employers and their
Agents.
1.
Employers. Employers that maintain an office or transact
business within Massachusetts and that make payment of wages taxable to a resident
or nonresident individual shall deduct and withhold a tax from such wages for each
payroll period. Employers not maintaining an office or transacting business within
Massachusetts may, as a convenience to employees, withhold Massachusetts income
taxes for employees who reside in Massachusetts and who request that their employer
withhold Massachusetts taxes. Employers that withhold as a convenience to employees
must meet all reporting, return, and payment obligations established under
830 CMR
62B.2.1.
2.
Agents of Employers.
If the person for whom the individual performs the services does not have control of
the payment of the wages for such services, the term "employer" means the person
having control of the payment of such wages. The federal approval of an agent under
Code § 3504 is effective for Massachusetts income tax withholding purposes. All
provisions of
830 CMR
62B.2.1 that are applicable to an employer shall
be applicable to a fiduciary, agent, or other person having control of the payment
of wages subject to withholding.
3.
Amount Withheld. An employer shall withhold amounts
determined according to tables prepared by the Commissioner. Amounts withheld shall
be substantially equivalent to the tax imposed by M.G.L. c. 62.
(b)
Payers of Gambling or Sports
Wagering Winnings. Payers of gambling winnings or sports wagering
winnings are required to withhold 5% on winnings, with the exception of winnings
from horse and dog racing, if:
1. the winnings are
subject to tax under M.G.L. c. 62; and
2. either:
a. the
winnings are subject to withholding under Code §§ 3402(q) and 3406; or
b. for lottery winnings, the winnings
are $600 or greater (for tax periods beginning on or after January 1, 2005).
As of November 18, 2005, Code § 3402(q) generally requires
withholding if the proceeds of the wagering transaction are greater than $5,000 and
at least 300 times as large as the amount wagered. Code § 3402(q) requires
withholding on state-conducted lotteries, sweepstakes, wagering pools, pari-mutuel
pools, jai alai, lotteries, and proceeds from a wager, but does not require
withholding on winnings from a slot machine, keno, and bingo. While
830 CMR
62B.2.1 does not reflect changes made to Code
§ 3402(q) after November 18, 2005, Massachusetts automatically adopts such
changes.
(c)
Payers of Unemployment
Compensation. If the recipient of an unemployment compensation payment,
as defined in Code § 85(b), has elected withholding of federal income tax on
such payment, then the payment shall be treated as if it were payment of wages by an
employer to an employee. The payer of such benefits shall withhold the amount set
forth in M.G.L. c. 151A, § 29E, and shall follow the applicable employer
withholding schedule.
(d)
Trustees of Retirement Funds. If an individual recipient of
a periodic or nonperiodic payment as defined in Code § 3405 has elected federal
income tax withholding on such income, the payer shall withhold the amount of
Massachusetts income tax withholding substantially equivalent to the amount
reasonably anticipated to be due.
(e)
Trustees of Pooled Income Funds and Charitable Remainder Annuity Trusts
or Unitrusts. Resident trustees of pooled income funds and resident
trustees of charitable remainder annuity trusts or unitrusts who make payment to
resident beneficiaries are required to withhold taxes, or pay estimated taxes, under
M.G.L. c. 62, §§ 11A and 11B at the applicable tax rates.
(f)
Withholding Agents Paying
Compensation to Performers or Performing Entities.
1. A person or entity that pays performers or
performing entities compensation for one or more performances shall withhold.
Compensation may not be paid to a performer or a performing entity unless the
required tax has been withheld. Any person or entity that transfers funds ultimately
payable in part or in full to a performer or performing entity may be held
responsible for withholding and subject to the penalty and interest provisions
described in
830 CMR
62B.2.1(12). If there is more
than one contract for the same date and venue with a performer or performing entity,
there may be a different withholding agent for each contract. The withholding agent
shall be:
a. The Massachusetts venue or, if the
venue is not a party to the contract with the performer or the performing entity,
the lessee of the venue; or
b. If the
venue or lessee of the venue is not a party to the contract with the performer or
performing entity, the promoter; or
c.
If there is no promoter, or if the promoter is not a party to the contract with the
performer or performing entity, the payroll service provider making payments to
performers, or the vendor selling merchandise for which a performer or performing
entity will receive a percentage of the sales price; or
d. Notwithstanding the requirements of
830 CMR
62B.2.1(4)(f)1.a, b, and c, any
person or entity the Commissioner designates who pays a performer or performing
entity compensation for one or more performances.
(5)
Employer and
Employee Reporting Obligations.
(a)
Withholding Exemption Certificate.
1.
Obligation to Furnish.
Withholding exemption certificates shall be in the form prescribed by the
Commissioner. Every employee shall furnish his or her employer with a signed
withholding exemption certificate setting forth the number of exemptions the
employee claims pursuant to M.G.L. c. 62, § 3(B)(b). Withholding exemption
certificates shall take effect as of the beginning of the first payroll period
ending, or as of the time of the first payment of wages made without regard to
payroll period, on or after the date on which such certificate is furnished. Each
certificate continues in effect with respect to the employer to whom it was
submitted until another certificate takes effect.
2.
Changes in Number of
Exemptions. If a withholding exemption certificate is furnished to take
the place of an existing certificate, the employer has the option to continue the
old certificate in force with respect to all wages paid on or before the first
status determination date which occurs at least 30 days after the date on which the
new certificate is furnished. For the purpose of
830 CMR
62B.2.1(5) the term "status
determination date" means January 1st and July
1st of each year. If changes occur in the number of
dependency exemptions to which an employee is entitled, the employee shall furnish
the employer with an accurate exemption certificate within ten days if the change
occurs during the calendar year, or before the beginning of the next calendar year
if the change is reasonably expected to occur at the beginning of the next calendar
year.
3.
Commissioner may
Determine Correct Number of Exemptions. If the Commissioner finds that
an employee has no reasonable basis for the number of dependency exemptions the
employee has claimed, the Commissioner shall determine the proper number of
dependency exemptions and shall notify the employer. Upon such notification, the
employer shall use the number of dependency exemptions determined by the
Commissioner with respect to wages paid to that employee.
4.
Penalties. There is a
$500 penalty for an employee's false statement on a withholding exemption
certificate that results in a decrease in the amount deducted and withheld. In
addition, a person who willfully supplies false or fraudulent information, or who
willfully fails to supply information that would require an increase in the tax to
be withheld shall be guilty of a misdemeanor and subject to a fine of up to $1,000
or imprisonment for up to one year, or both.
(b)
Estimate Quarterly
Wages. The employer may:
1. estimate
the wages that will be paid to any employee in any quarter of the calendar
year;
2. determine the amount to be
deducted and withheld upon each payment of wages to the employee during that quarter
as if the average of the estimated wages constituted the actual wages paid;
and
3. deduct and withhold upon any
payment of wages to the employee during that quarter the amount necessary to adjust
the amount actually deducted and withheld to the amount that would be required to be
deducted and withheld during the quarter if the payroll period of the employee were
quarterly.
(c)
Miscellaneous Payroll Periods. If wages are paid with
respect to a period that is not a payroll period, the amount to be deducted and
withheld shall be for a miscellaneous payroll period containing a number of days,
including Sundays and holidays, equal to the number of days in the period with
respect to which the wages are paid. If wages are paid by an employer without regard
to any payroll period, the amount to be deducted and withheld shall be for a
miscellaneous payroll period containing the number of days, including Sundays and
holidays, that have elapsed since the date of the last payment of wages by the
employer during the calendar year, or the date of commencement of employment with
the employer during the year, or January 1st of the year,
whichever is later.
(d)
Furnish Wage or Payment Statement by January
31st. Every employer and other withholding
entity that deducts and withholds a tax from an employee or payee shall furnish a
written statement in duplicate to each employee or payee in respect of the wages or
other payments paid to that employee or payee during the calendar year. The written
statement must show the name of the employer or payer, the name of the employee or
payee and his or her social security number, if any, the total amount of wages or
payments subject to taxation under M.G.L. c. 62, and the total amount deducted and
withheld as tax. This statement shall be made on or before January
31st of the succeeding year, or, if employment is
terminated before the close of the calendar year, within 30 days from the day on
which the last payment of wages is made. The Commissioner may grant reasonable
extensions of time, not exceeding 60 days, to furnish this statement.
(6)
Registration and
Reporting Obligations of designated Withholding Agents of Performers or Performing
Entities; Reporting Obligation of Performing Entity.
(a) A withholding agent pursuant to
830 CMR
62B.2.1(4)(f)1. shall:
1. register electronically for Massachusetts
withholding on compensation paid to performers or performing entities;
2. deduct and withhold Massachusetts income tax on
payments to or for performers or performing entities as if such payments were wages
paid by an employer to an employee, withholding an amount as determined under
830 CMR
62B.2.1(4)(f)2. from each payment
to a performer or performing entity;
3.
report and pay the amount of taxes withheld during a quarter-monthly period within
three days after the close of the quarter-monthly period, using electronic media for
all reports and making all payments as ACH debit transactions;
4. file an electronic return on or before the last
day of the month following the close of the calendar quarter even if no tax was
withheld during the calendar quarter;
5.
show on federal Form 1099-MISC (or federal Form 1042-S if the performer or
performing entity is a foreign person) the amount of Massachusetts income tax
deducted and withheld, even if such form is not required under federal law. The
person treated as an employer must furnish a federal Form 1099-MISC to each person
treated as an employee on or before the last day of January on the next succeeding
calendar year, unless the person treated as an employee is a foreign person, in
which case the person treated as an employer must furnish a federal Form 1042-S to
each foreign person treated as an employee on or before March
15th of the next succeeding calendar year; and
6. keep complete records, showing the name and
social security number or federal tax identification number of the performer or
performing entity, the gross amount paid to the performer or performing entity, the
amount of Massachusetts income tax withheld, and the date(s) and location(s) of the
performance(s), as well as copies of all forms 1099-MISC and 1042-S
issued.
(b)
Performing Entity; Member or Participant of Performing
Entity. A performing entity must determine how much of the aggregate
income and Massachusetts income tax withholding reported by the withholding agent on
federal Form 1099-MISC or federal Form 1042-S is attributable to each member or
participant and furnish to each member or participant a withholding allocation form
showing the member or participant's attributed withholding amount. If the recipient
of a withholding allocation form is not an individual, the recipient must furnish to
each of its members or participants an additional withholding allocation form
showing how its withholding amount is attributed to each of its members or
participants. This process is repeated until the recipient of a withholding
allocation form is an individual. Each entity shall keep copies of withholding
allocation forms it has issued. Each individual recipient of a withholding
allocation form shall file a copy of the form with his or her Massachusetts income
tax return, and may claim a credit for the withheld amount shown on the withholding
allocation form.
(7)
Returns and Payments.
(a)
Withholding Schedules.
1.
Payroll Withholding.
a.
Withholding Categories. For withholding tax purposes,
employers shall be divided into the following categories:
i.
Type 1: Every employer
required to deduct and withhold taxes under M.G.L. c. 62B, § 2 that can
reasonably expect that total taxes withheld will not exceed $100 for the calendar
year.
ii.
Type
2: Every employer required to deduct and withhold taxes under M.G.L. c.
62B, § 2 that can reasonably expect that total taxes withheld will exceed $100
but not $1,200 for the calendar year.
iii.
Type 3: Every
employer required to deduct and withhold taxes under M.G.L. c. 62B, § 2 that
can reasonably expect that total taxes withheld will exceed $1,200 but not $25,000
for the calendar year.
iv.
Type 4: Every employer required to deduct and withhold
taxes under M.G.L. c. 62B, § 2 that can reasonably expect that total taxes
withheld will exceed $25,000 for the calendar year.
b.
Employers: General.
i.
Type 1: Employers.
Every Type 1 employer shall file a return and pay over to the Commissioner the taxes
withheld during the calendar year on or before the last day of January following the
close of the calendar year.
ii.
Type 2: Employers. Every Type 2 employer shall file a
return and pay over to the Commissioner the taxes withheld for each calendar quarter
on or before the last day of the month following the close of the calendar
quarter.
iii.
Type 3:
Employers. Every Type 3 employer shall file a return and pay over to
the Commissioner the taxes withheld for each calendar month on or before the
15th day of the following calendar month, except that for
the months of March, June, September and December, the return shall be filed and the
taxes withheld shall be paid on or before the last day of the following calendar
month.
iv.
Type 4:
Employers. Every Type 4 employer shall pay over to the Commissioner the
cumulative amount of taxes withheld and not previously paid over, when this
cumulative amount is $500 or more at the end of any quarter monthly period. Such
payment shall be made within three business days after the close of the
quarter-monthly period. Type 4 employers shall also file a return on or before the
last day of the month following the close of each calendar quarter accompanied by
any unpaid withheld taxes.
c.
Employers: Seasonal. A seasonal employer may be permitted
by the Department to file withholding tax returns for only those calendar months in
which it is required to deduct and withhold Massachusetts income tax. Permission is
granted to file as a seasonal employer when a business has indicated to the
Department, either on Form TA-1 Application for Original Registration, or on Form
TA-2 Application for Additional Registration, that taxes are withheld only during
certain months of the year. Permission to file as a seasonal employer shall take
effect immediately and remain in effect as long as the employer remains a seasonal
employer.
2.
Annual Withholding from Nonpayroll Payments.
a.
Payers That may Report
Annually. With the exception of payers of gambling winnings, payers of
nonpayroll payments that withhold Massachusetts income taxes, and that report
annually on Federal Form 945 for purposes of federal income tax withholding, may
report withheld Massachusetts income taxes annually. An annual report is required
from each payer registered to withhold, whether or not the payer withheld
Massachusetts taxes during the calendar year. Withheld amounts that may be reported
annually include, for example, certain annuities as described in Code §
3402(o)(1)(B) and pensions, annuities, IRAs, and certain other deferred income
subject to withholding under Code § 3405. Annual returns filed under
830 CMR
62B.2.1(6)2. are due on or before
the last day of January following the close of the calendar year. A reconciliation
of deposits made and amounts withheld throughout the year shall accompany the annual
filing. No withholding is required on nonpayroll payments that do not exceed the
lesser of $10 per payee or $100 to all Massachusetts payees during one tax
year.
b.
Payment
Requirements for Annual Reporters. Annually reported nonpayroll
withheld taxes should be paid, accompanied by a Massachusetts tax deposit coupon, as
follows:
i. if the payer of nonpayroll payments
can reasonably expect that the total taxes withheld will not exceed $100 for the
calendar year, payment shall accompany the annual return;
ii. if the payer of nonpayroll payments can
reasonably expect that the total taxes withheld will exceed $100 but not $1,200 for
the calendar year, payment shall be made no later than the last day of the month
following the close of a calendar quarter for the amount withheld during the
calendar quarter;
iii. if the payer of
nonpayroll payments can reasonably expect that the total taxes withheld will exceed
$ 1,200 but not $25,000 for the calendar year, payment shall be made no later than
the 15th day of the calendar month for the amount
withheld during the previous calendar month; or
iv. if the payer of nonpayroll payments can
reasonably expect that the total taxes withheld will exceed $25,000 for the calendar
year, payment shall be made no later than three business days after the close of the
quarter monthly period when the cumulative amount of taxes withheld and not
previously paid over is $500 or more at the end of any quarter-monthly
period.
3.
Gambling Winnings. Gambling winnings withheld under Code
§ 3402(q) and reported annually for purposes of federal income tax must be
treated as if they were wages paid by an employer to an employee and withheld
according to the applicable employer withholding schedule.
(b)
Form of Payment. The
Commissioner may, in his discretion, provide that any taxes deducted and withheld
under M.G.L. c. 62B, § 2 be paid over to a depository designated by him. Such
payment to a depository shall be deemed to be payment to the Commissioner under the
provisions of
830 CMR
62B.2.1. Payments must be made in accordance with
the requirements of
830 CMR
62C.78.1.
(8)
Methods of
Calculation. The amount of tax due may be calculated using tables
promulgated by the Commissioner. Alternatively, employers may use accounting
machines to calculate the proper amount to be deducted and withheld from wages,
provided that such calculation produces substantially the tax required by such
tables. In determining the amount to be deducted and withheld, wages may, at the
election of the employer, be computed to the nearest dollar.
(9)
Multiple Withholding.
(a)
Two or More
Employers.
1. If an employee works for
two or more separate employers during the same or overlapping payroll periods, the
employee is entitled to claim exemptions and deductions upon only one withholding
exemption and deduction certificate. No exemptions or deductions may be claimed on
certificates furnished to other employers.
2. If an employee works concurrently for two or
more joint or related employers, the amount of tax required to be withheld on each
wage payment to the employee, whether the wages are paid separately by each employer
or paid in a lump sum by all of the employers, may be determined upon the aggregate
amount of payments in the same manner as if that amount had been paid by one
employer.
3. If a payment of wages is
made to an employee by an employer through an agent, fiduciary, or other person who
also has the control, receipt, custody, or disposal of, or pays the wages payable by
another employer to the employee, the amount of tax required to be withheld on each
wage payment made through such agent, fiduciary, or person, whether the wages are
paid separately on behalf of each employer or paid in a lump sum on behalf of all of
the employers, may be determined upon the aggregate amount of payments in the same
manner as if that amount had been paid by one employer.
4. Under
830 CMR
62B.2.1(9)(a)(2), and
62B.2.1(9)(a)(3),
each employer shall be liable for the return and payment of a pro rata portion of
the tax so determined, in the ratio which the amount contributed or paid by the
particular employer bears to the aggregate of such wages.
(b)
Multiple Withholding.
If for any payroll period an employer is required to deduct and withhold from the
wages paid to a resident of Massachusetts the income taxes of other states, the
District of Columbia, any territory or dependency of the United States (excluding
the United States itself) or Canada or its provinces levied upon such wages, the
employer shall deduct and withhold under the provisions of M.G.L. c. 62B, § 2
for that payroll period the Massachusetts withholding amount, less the amount
required to be deducted and withheld on account of those wages under the laws, rules
or regulations of other states, the District of Columbia, territory or dependency of
the United States (excluding the United States itself) or Canada or its
provinces.
(c)
Additional
Withholding.
1. In addition to the
tax required to be deducted and withheld in accordance with the provisions of M.G.L.
c. 62B, § 2, the employer and employee may agree that an additional amount
shall be withheld from the employee's wages. The agreement shall be in writing and
shall be in the form prescribed by the employer. The agreement shall be effective
for a period mutually agreed upon by the employer and employee. Unless the agreement
provides for an earlier termination, either the employer or the employee, by
furnishing a written notice to the other, may terminate the agreement effective with
respect to the first payment of wages made on or after the first "status
determination date" (January 1st and July
1st of each year) which occurs at least 30 days after the
date on which the notice is furnished.
2. The amount deducted and withheld pursuant to an
agreement between the employer and employee shall be treated as tax required to be
deducted and withheld under M.G.L. c. 62B, § 2. All provisions of law and
regulations applicable with respect to the tax required to be deducted and withheld
under M.G.L. c. 62B, § 2 shall apply with respect to any amount deducted and
withheld pursuant to the agreement.
(10)
Pensions, Annuities, and other
Retirement Arrangements. In general, income is subject to Massachusetts
income tax withholding if it is taxable under Massachusetts personal income tax law
and it constitutes wages for federal withholding purposes. With certain statutory
exceptions, withholding is required only if both conditions apply. The tax advantage
conferred upon many retirement plans is that income recognition of contributions and
plan earnings is deferred to the time distributions are made from the plan.
Generally, retirement plan funds are taxed once, either at the time of contribution
or the time of distribution. If the Massachusetts tax treatment of contributions
differs from the federal treatment, the Massachusetts tax treatment of distributions
will differ correspondingly.
(a)
Contributions.
1.
Federal Definition of Wages. The federal definition of
wages, adopted by Massachusetts under M.G.L. c. 62B, § 1, excludes
contributions to certain qualified pension, profit sharing, annuity, cash or
deferred arrangements, and stock bonus plans. See Code §
3401(a)(12) and the regulations thereunder for guidance on specific exclusions.
Generally, amounts included in federal wages for withholding purposes are also
included in Massachusetts wages, although certain types of retirement contributions
are not taxed in Massachusetts, regardless of the federal treatment.
See
830 CMR
62B.2.1(10)(a)2. Generally,
Massachusetts withholding is not required on employer contributions to plans
excluded from the federal definition of wages, although certain types of retirement
contributions are statutorily included in wages for Massachusetts withholding
purposes even though they may be excluded for federal purposes. See
830 CMR
62B.2.1(10)(a)3.
2.
Contribution Amounts not Subject to
Tax in Massachusetts. Withholding is not required on contributions to
the following pension or retirement plans, regardless of whether such contributions
are included in the federal definition of wages.
a. Wage or salary deductions contributed to the
Savings Banks Employees Retirement Associations under M.G.L. c. 168, §§ 39
through 41.
b. Wage or salary deductions
contributed to the Co-operative Banks Employees Retirement Association under M.G.L.
c. 170, §§ 30 through 32.
c.
Wage or salary deductions contributed to the Credit Union Employees Retirement
Association under M.G.L. c. 171, §§ 31 through 33.
3.
Contribution Amounts Included in
the Massachusetts Definition of Wages but not Included in the Federal Definition of
Wages. Withholding is required on contributions made on behalf of a
public employee to a state or municipal retirement system established under M.G.L.
c. 32, §§ 1 through 28 (including contributions to a teachers' retirement
fund established under M.G.L. c. 15A, § 40), and to the Massachusetts judges'
retirement fund under M.G.L. c. 32, § 65D for a judge appointed on or after
January 2, 1975.
(b)
Distributions. Generally, distributions under employer
deferred compensation plans and Individual Retirement Accounts are included in
taxable income and are subject to Massachusetts withholding if they are subject to
federal withholding. There is no withholding, however, on any part of a distribution
that is not expected to be includible in the recipient's taxable income. Any portion
of a distribution that the recipient could exclude from income because it represents
either the employee's nondeductible contributions to the plan or the annuitant's
investment in the contract is not subject to withholding. The amount of the
distribution that is taxable in Massachusetts will differ from the federal taxable
amount if the Massachusetts treatment of contributions differs from federal
treatment.
1.
Periodic and Nonperiodic
Distributions under Code § 3405(a) and (b) and Subject to Federal
Withholding. If an individual elects federal withholding on
distributions from pensions, annuities, and certain other deferred income, as
provided under Code § 3405(a)(2) and (b)(2), Massachusetts withholding is
required except on the portion of the distribution that represents previously taxed
contributions.
2.
Contributory and Military Government Pensions; Social
Security. Although distributions from contributory annuity, pension,
endowment or retirement funds of the United States government or the commonwealth or
any political subdivision to which the employee has contributed, or any income
received from the United States government as retirement pay for a retired member of
the Uniformed Services of the United States, are subject to elective federal
withholding, such distributions are not subject to Massachusetts withholding.
Similarly, social security benefits, which are subject to voluntary federal
withholding, are not subject to Massachusetts withholding. Income from federal or
Massachusetts state or local government contributory or military pensions, or social
security, is not taxed in Massachusetts. Massachusetts state court judges appointed
on or after January 2, 1975 are participants in the contributory retirement system
and their pension distributions are nontaxable. State court judges appointed before
January 2, 1975 receive taxable noncontributory pensions. All or part of the pension
income of certain retirees from Massachusetts state or local government service who
began Massachusetts state service prior to July 1, 1939, who retired under M.G.L. c.
32, §§ 56 through 60, and who are also veterans, may be subject to
tax.
3.
Rollovers. A distribution constituting a federally tax-free
rollover from a qualified pension, profit-sharing, stock bonus, or annuity plan, or
otherwise accorded tax-free federal rollover treatment, to an eligible retirement
plan, will require no withholding for Massachusetts purposes if no withholding is
required for federal purposes. If assets are transferred, or "rolled over" as a
tax-free transfer of money or property from one plan into another, no income will be
realized at the time of the transaction for Massachusetts income tax purposes if no
income is realized for federal income tax purposes. If federal withholding is
required on the taxable part of an eligible rollover distribution that is not rolled
over directly to another eligible plan, it is also required in Massachusetts unless
such eligible rollover distributions would never be subject to Massachusetts
personal income taxation independent of the facts and circumstances of a taxpayer's
particular tax situation. The term "eligible rollover distribution" shall have the
same meaning as under Code § 3405(c). Any withholding that is required under
this subsection is subject to annual reporting and the payment schedule described in
830 CMR
62B.2.1(6)(a)2. The amount
subject to withholding in Massachusetts is the entire distribution, less any
previously taxed contribution.
4.
Roth Individual Retirement Accounts (IRAs) and Education Savings
Accounts. Distributions from Roth IRAs (Code § 408(a)) and
Education Savings Accounts (Code § 530) are included in Massachusetts income
and Massachusetts withholding will follow federal withholding treatment.
Massachusetts follows federal rollover rules for conversions from a traditional IRA
to a Roth IRA.
5.
Guaranteed
Payments by Partnership to Retiring Partner. Withholding for
Massachusetts on payments characterized as guaranteed payments under Code § 736
will follow federal withholding treatment. Generally, such payments are taxable to
the retiring partner but are not subject to withholding.
6.
Retirement Income of
Non-residents. Generally, non-residents' retirement income, as defined
in 4 U.S.C. §
114, is not subject to Massachusetts withholding.
Massachusetts source retirement income not covered under
4 U.S.C. §
114 is subject to withholding in
Massachusetts.
7.
Retirement
Income to a Massachusetts Resident from another State or a Political Subdivision of
another State. Withholding is not required on income to a Massachusetts
resident from a contributory annuity, pension, endowment or retirement fund of any
other state or political subdivision of another state, if income from a similar
Massachusetts fund would not be taxed in that state or political
subdivision.
(11)
Fringe Benefits. Massachusetts follows the federal
definition of wages for withholding on fringe benefits. Therefore, fringe benefits
that are excluded from withholding for federal purposes are excluded from
Massachusetts withholding as well.
(a)
Exclusions under Code § 3401(a). Withholding is not
required in Massachusetts to the same extent it is not required federally on the
fringe benefits contained in Code § 3401(a). While
830 CMR
62B.2.1 does not reflect changes made to Code
§ 3401(a) after November 18, 2005, Massachusetts automatically adopts such
changes. All terms are as defined in or under Code § 3401(a). As of November
18, 2005, excluded from Massachusetts withholding are federally excludable:
1. group-term life insurance on the life of an
employee;
2. remuneration for moving
expenses;
3. educational assistance
programs;
4. dependent care assistance
programs, including dependent care assistance programs as a qualified military
benefit;
5. employee achievement
awards;
6. qualified
scholarships;
7. Code § 132 fringe
benefits:
a. no additional-cost service;
b. qualified employee discount;
c. working condition fringe;
d.
de minimis fringe;
e. qualified transportation fringe;
f. qualified moving expense
reimbursement;
8. medical
care reimbursement paid under a self-insured medical reimbursement plan;
9. contributions to or for the benefit of an
employee under a medical savings account; and
10. payment to or for the benefit of an employee
if the employee could exclude the payment from income under Code § 106(d)
(contributions to health savings accounts).
(b)
Sick Pay. Sick pay
that is either:
1. attributable to contributions by
the employer that were not includible in the gross income of the employee,
or
2. paid by the employer, is included
in the federal definition of wages and is therefore subject to withholding in
Massachusetts. Employers shall also withhold Massachusetts income tax if an employee
has requested that an employer withhold on sick pay that is not included in wages
for federal income tax purposes under Code § 3402(o).
(c)
Cafeteria Plans.
Employer contributions to, and employee benefits provided under, a Code § 125
cafeteria plan are subject to Massachusetts withholding to the same extent they are
subject to federal withholding.
(12)
Interest and
Penalties.
(a)
Interest. If any amount of withholding tax is not paid to
the Commissioner on or before its statutory due date, there shall be added to the
tax interest at the rate of the Federal short-term rate determined under Code §
6621(b) in effect for the taxable year, plus four percentage points, compounded
daily.
(b)
Penalty for Late
Filing of Return. The penalty for late filing of a withholding return
is 1% of the balance due for each month or fraction of a month that the return is
late, up to a maximum of 25% of the tax amount.
(c)
Penalty for Late Payment of
Tax. The penalty for late payment of withholding tax is U of 1% of the
balance due for each month or fraction of a month that the payment is late, up to a
maximum of 25% of the tax amount. Taxpayers required to deposit or to make payment
of tax in advance of the filing of the return with respect to such payment are also
subject to a penalty of 5% of the amount of the underpayment if the taxpayer fails
to make such deposit or payment on or before the date prescribed therefor, unless it
is shown that such failure is due to reasonable cause and not to willful
neglect.
(d)
Penalty for
Failure to File. A taxpayer that has failed to file a return or has
filed an incorrect or insufficient return, and after notification by the
Commissioner refuses or neglects within 30 days after the date of such notification
to file a proper return, or if a taxpayer has filed a false or fraudulent return or
has filed a return with a willful attempt in any manner to defeat or evade the tax,
the Commissioner may determine the tax due, according to his best information and
belief, and may assess the same at not more than double the amount so determined,
which additional tax shall be in addition to other penalties.
(e)
Criminal Penalties. A
person who fails to pay tax, make a return, keep records, or supply information as
required by law or regulation is guilty of a misdemeanor and subject to a fine of up
to $25,000 (or $100,000 in the case of a corporation) or imprisonment for up to one
year, or both. A person who, in connection with the filing of a tax return or the
payment of any tax, receives money from another person on the understanding that it
is to be paid over to the commissioner to discharge, in whole or in part, the other
person's tax liability and willfully fails to pay over the same to the commissioner
shall be guilty of a felony and subject to a fine of up to $100,000 (or $500,000 in
the case of a corporation) or imprisonment for up to three years, or both.
(f)
Who is Liable. Every
employer or other person required to withhold who fails to withhold or pay to the
Commissioner any sums required by the withholding statutes to be withheld or paid
shall be personally and individually liable therefor to the commonwealth. Any sum or
sums withheld in accordance with the provisions of M.G.L. c. 62B, § 2 are
deemed to be held in trust for the commonwealth. If an employer or other person
required to withhold fails to withhold and thereafter the tax against which the
withholding tax may be credited is paid, the withholding tax shall not be collected
from the employer or other person required to withhold, but the employer or other
person required to withhold will still be liable for any penalties or addition to
the tax otherwise applicable to the failure to withhold. In the event an employer or
other person required to withhold fails to withhold and pay over to the Commissioner
any amount required to be withheld under M.G.L. c. 62B, § 2, such amount shall
be assessed against such person, under the provisions of M.G.L. c. 62C, §§
26 through 29.
(13)
Credit Against Taxes. The amount deducted and withheld as
tax under M.G.L. c. 62B, § 2 during any calendar year upon the wages of any
employee or the payment to any payee shall be allowed as a credit to the recipient
of the income against his or her income tax. If more than one taxable year begins in
the calendar year, such amount shall be allowed as a credit against the tax for the
last taxable year beginning in the calendar year.