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 the calculation methods or tables, as applicable, provided 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. 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 the calculation methods or tables, as applicable, provided 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 chapter 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).

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.

(c) Payer 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 & 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. 2. A withholding agent must withhold tax at the rate imposed on Part B taxable income under G.L. c. 62, § 4(b) multiplied by the gross payment to the performer or the performing entity, unless the performer or performing entity requests in advance of the performance that withholding be reduced or waived, and the Commissioner grants the request. For purposes of 830 CMR 62B.2.1(4)(f), a gross payment is the sum of all payments made by one payer to the same performer or performing entity for performances during the calendar year. If the withholding agent’s gross payment to an individual performer exceeds the taxable income threshold referenced in M.G.L. c. 62, § 4(d), then the tax rate applicable to the portion of such payments exceeding the taxable income threshold shall be the applicable rate under M.G.L. c. 62, § 4(b) plus an additional 4%. 3. Withholding pursuant to 830 CMR 62B.2.1(4)(f) is not required if the payer reasonably anticipates that gross payment will not exceed the threshold established by the Commissioner. The Commissioner may direct a withholding agent to withhold notwithstanding the established threshold. 4. A payer that is exempt from federal taxation under Section 501(c)(3) of the Code is not required to withhold taxes from persons who are not employees, unless the aggregate amount paid for a particular performance exceeds $10,000.