Business Taxes for Massachusetts LLCs
Business taxes are a fact of life, and your MA LLC will need to pay a variety of taxes to both the federal and Massachusetts governments. We’ll cover all the main taxes in Massachusetts including self-employment, payroll, federal, Massachusetts state tax and Massachusetts sales tax. If you want to get a Massachusetts tax ID, you can acquire one by contacting the MA Department of Revenue.
If you want help with your taxes, Incfile provides a complete Business Tax Filing service.
How Your Massachusetts LLC Will Be Taxed
The profits of a Massachusetts LLC are not taxed at the business level like those of C Corporations. Instead, taxes for a Massachusetts LLC work as follows:
Massachusetts LLC owners pay self-employment tax on business profits
Massachusetts LLC owners pay MA state tax on any profits, less state allowances or deductions
All LLC owners pay federal income tax on any profits less federal allowances or deductions
Some MA LLCs pay Massachusetts sales tax on products
Employers pay payroll tax on any salaries they pay to employees
Employees pay federal, state and payroll tax on their earnings
Items 1, 2 and 3 are taxed as “pass-through” income for any LLC owners, managers or members who receive profits from the business. Any profits are reported on federal and Massachusetts personal tax returns, and that’s where you will pay those taxes.
Massachusetts Business Taxes Payable to the MA Government
There are two main types of tax that you will pay to the Massachusetts Department of Revenue: Massachusetts state income tax and Massachusetts state sales tax. You will need an MA tax ID for paying each one.
Massachusetts State Income Tax Payable on LLC Earnings
As a Massachusetts business owner, you will need to pay MA state tax on any money you pay to yourself. These earnings flow through to your personal tax return, which is where you will pay Massachusetts income tax. You will be taxed at the standard rates for Massachusetts state taxes, and you will also get to apply regular allowances and deductions. Any salaried employees will also need to pay personal Massachusetts state taxes.
The Massachusetts state tax rate is just over 5 percent.
Get details on the Massachusetts state tax online here.
Massachusetts Sales Tax for LLCs
If you sell physical products or certain types of services, you may need to collect sales tax (also known as sales and use tax) and then pay it to the MA Department of Revenue. Massachusetts sales tax is collected at the point of purchase. Massachusetts sales tax rates do vary depending on the region, county or city where you are located.
You will typically need to collect Massachusetts sales tax on:
Tangible, personal property and goods that you sell like furniture, cars, electronics, appliances, books, raw materials, etc.
Certain services that your Massachusetts business might provide
Most states do not levy sales tax on goods that are considered necessities, like food, medications, clothing or gas.
Get details on the Massachusetts sales tax online here.
Massachusetts Sales Tax Rates
Sales tax rates do vary between states, counties and cities. Typically, the state will set a base sales tax rate, then specific counties and cities may levy small additional sales tax amounts on top of that.
Federal Self-Employment and Income Taxes for Your Massachusetts LLC
There are a couple different federal taxes that every LLC will need to pay, including Massachusetts LLCs. These are self-employment tax and federal income tax, which are taxed as “pass-through” income via your tax return forms.
Massachusetts LLC Federal Self-Employment Tax
All Massachusetts LLC business members or managers who take profits out of the LLC will need to pay self-employment tax. This tax is also known as FICA, Social Security or Medicare tax. It applies to all the earnings you withdraw from your Massachusetts business. The current self-employment tax rate is 15.3 percent.
You will be able to deduct your business expenses from your income when working out how much self-employment tax you owe. Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:
On profits of $40,000, you would pay self-employment tax of $6,120
On profits of $80,000, you would pay self-employment tax of $12,240
On profits of $120,000, you would pay self-employment tax of $18,360
On profits of $160,000, you would pay self-employment tax of $24,480
Pay Less Self-Employment Tax by Treating Your Massachusetts LLC as an S Corporation
The Internal Revenue Service allows LLCs to ask to be treated as an S Corporation for tax purposes. This can help you reduce the amount of self-employment tax that you pay by declaring some of your income as salary and other income as distributions or withdrawals.
You can do this by making an “S Corporation Tax Election” with the IRS using a form known as Form 2553. We can file your Form 2553 with the IRS on your behalf.
Incfile Form 2553 S Corporation Tax Election for an LLC service
Speak to your accountant for more information on reducing your Massachusetts LLC self-employment tax through an S Corporation tax election.
Massachusetts LLC Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your Massachusetts LLC. The amount of income tax you pay depends on your earnings, current income tax brackets, deductions and how you file.
You only pay federal income tax on your Massachusetts LLC profits that you take out of the business, less certain deductions and allowances. This includes your tax-free amount, plus LLC business expenses and other deductions for areas such as healthcare and some retirement plans. Speak to your accountant for more information.
Employer and Employee Taxes for Your Massachusetts LLC
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your own unique situation.
Employer Payroll Tax Withholding for Your Massachusetts LLC
All employers must collect and withhold payroll tax from their employees when they receive their salaries. You would normally withhold 7.65 percent of the taxable salary that you pay to your employees.
Employer Federal and State Tax Withholding for Your Massachusetts LLC
You may also choose to withhold federal and Massachusetts state income tax on the wages you pay to employees. Speak to your accountant for more information.
Employees May Need to File Tax Returns
Regardless of whether you withhold federal and Massachusetts state income tax, your employees may need to file their own tax returns.
Massachusetts LLC Employee Insurance and Other Requirements
You may also need to pay insurance for any employees, like employee compensation insurance or unemployment tax. There will also be other requirements you have for employees.
Get more requirements from the Massachusetts Department of Labor Standards website.
Other Taxes and Duties for Your Massachusetts LLC
Depending on the industry you are in, your Massachusetts LLC may be liable for certain other taxes and duties. For example, if you sell gasoline you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties. Speak to your accountant about any other taxes you may need to withhold or pay.
Estimated Taxes for Your Massachusetts LLC
Most Massachusetts LLCs will need to pay estimated taxes throughout the year, depending on the amount of income and profit you expect to make. The most common types of estimated tax are:
Most Massachusetts LLCs will pay estimated taxes four times a year. Speak to your accountant for more information.
FAQs on Massachusetts LLC Business Taxes
Does Massachusetts Have Sales Tax?
Yes. Massachusetts does have a sales tax, which may vary among cities and counties.
Does Massachusetts Have a State Tax?
Yes. Massachusetts does have a general state income tax.
Do I Need to Pay Estimated Taxes?
Yes. In most cases you must pay estimated taxes on your Massachusetts tax, federal income tax and self-employment tax. Speak to your accountant for more information.