(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 1
st and
July 1
st 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.