How to File LLC Taxes in Massachusetts? (Simple Guide)

As a Massachusetts LLC owner, you are responsible for complying with various tax obligations and tax requirements.

To help you understand the various taxes you're subject to, we have assembled our team of LLC gurus possessing over two decades of joint experience in the LLC industry.

This article provides an overview of all Massachusetts LLC taxes, drawing from their expertise and comprehensive state resources.

Quick Summary

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How Are LLCs Taxed in Massachusetts?

LLCs in Massachusetts are taxed under LLC pass-through taxation by default. Massachusetts LLCs do not file their own taxes; members report their income and pay taxes on their individual tax returns.

Besides filing individual tax returns, there are other state, local and federal government returns an LLC is responsible for. We'll discuss them below.

State Taxes for Massachusetts LLCs

In Massachusetts, LLCs are liable to file income taxes based on their structure.

In addition to income taxes, LLCs may also be subject to other business tax obligations depending on their industry and structure.

However, before filing any state taxes, the Internal Revenue Service (IRS) must approve their filing status on a federal level for the Massachusetts Department of Revenue to recognize it.

Here's how Massachusetts LLCs pay state taxes.

1. Single-Member LLCs

According to the IRS, LLCs owned by a single member are not expected to pay income taxes directly.

Such LLCs are treated like sole proprietorships if owned by an individual or branch if owned by another company.

Single-member LLC owners must also pay self employment taxes on their earnings.

When filing under this default status, you must file a federal tax form and personal tax return.

The federal tax form for single-member LLCs is Form 1040, where members report their individual income tax returns. You'll also pay Massachusetts's flat 5% individual income tax rate [1].

2. Multi-Member LLCs

A Massachusetts multi-member LLC pays taxes like a partnership by filing Form 1065 with the IRS.

Further, the LLC is responsible for filing a Partnership Return of Income (Form 3)  to report its income to the state, even though an LLC doesn't pay its income tax directly [2].

3. LLCs taxed as S-corp

All LLCs in Massachusetts can elect their LLC as an S-corporation for income tax purposes. They can do this by filing Form 2553 on the IRS website.

S-corps are taxed as pass-through entities like normal business structures but are not subject to corporate income; they must pay the 8% Massachusetts Corporate Excise Tax on tangible personal property or net worth [3].

An S-corp status allows Massachusetts LLCs not to pay self-employment tax on earnings distributions, but an individual member will have to pay this tax on their salary.

This can result in significant savings on self-employment taxes for profitable businesses.

"As an LLC owner, you should know that making a corporate election for tax reasons ensures that your LLC retains its liability protection since a corporation status is a tax status, not a separate business entity."
- Niko Brosnihan, Business Lawyer 

4. LLCs taxed as C-corp

LLCs can also elect to be taxed as C-corps in Massachusetts. A C-corp status is the default filing status for corporations.

LLCs taxed as C-corps are subject to federal corporate taxes at 21% and Massachusetts corporate excise taxes at 8% of a business's taxable net income. 

You can elect your corporation to file under C-corp status by filing Form 8832. Once the request is granted, you'll file your LLC business taxes on Form 1120.

Federal Taxes for Massachusetts LLCs

Paying taxes is a crucial duty for LLCs, and understanding the specific federal tax obligations is essential for compliance.

Other than state taxes, Massachusetts LLCs must pay federal income tax and self-employment tax.

1. Federal Self-employment Tax

The Federal Self-employment Tax is issued by the Federal Insurance Contributions Act (FICA).

All LLCs members and managers must pay the Federal Self-employment Tax on profits withdrawn from the LLC. 

The self-employment tax rate is 15.3%, encompassing 12.4% for social security and 2.9% for Medicare [4].

2. Federal Income Tax

An LLC is also subject to federal income tax on any earnings drawn from the business. Federal income taxes are only levied on drawing off profits from the LLC, minus deductions and allowances.

The tax also varies depending on the LLC income, tax return bracket, filing status, and deductions, like a pension plan and health care.

Other Taxes

A Massachusetts LLC gets charged several other taxes. And if your LLC has employees, you will also need to pay employer taxes, which include federal and state obligations.

1. Sales and Use Tax

All sales and rentals of tangible personal goods and services in Massachusetts are subject to a general sales tax of 6.25% [5]. The Department of Revenue publishes a list of the goods and sales exempt from paying sales tax.

Sales / Use Tax must be paid annually, quarterly, or monthly depending on how much money your LLC generates:

• $100 or less: Due annually
• $101 – $1,200: Due quarterly
• $1,201 or more: Due monthly

You can register for Massachusetts sales tax using MassTaxConnect.

2. Local Massachusetts Taxes

Apart from sales tax, you may be liable for additional municipal taxes, depending on your business's location and the nature of its assets.

In places like Boston and Worcester, this includes excise taxes on vehicles and municipal property taxes. You should verify with your local government to identify which local taxes are specific to your LLC.

3. Employer Taxes

Employer taxes must be paid if your Massachusetts business has employees.

The employer must withhold and pay employee income taxes. The withholding tax rate is 7.65%. But first, you must register with the DOR.

Income tax withholding reports must be filed regularly, typically monthly or quarterly, through the M-941 form [6].

You'll also register with the Department of Unemployment Assistance (DUA). After that, you must make quarterly contributions to unemployment insurance.

Employers in Massachusetts are obliged to submit UI contributions on the first $15,000 of annual wages they give each employee.

For new employers who are not in the construction sector, the UI tax rate is 2.42%, and for new employers who are in the industry, it is 6.72%.

The Department of Unemployment Assistance determines the employer's UI tax rate after three years based on the reserve percentage of the employer.

Rates can range from 0.56% to 18.55% according to the Department's UI Tax Rate Schedule, depending on the employer's reserve ratio.

Related Articles:

• How to Set Up an LLC in Massachusetts
• Professional Registered Agent Services in Massachusetts
• Top LLC Formation Services in Massachusetts

4. Industry-Related Taxes

The Massachusetts Department of Revenue also collects extra business taxes that are particular to certain industries, including: 

• Motor Fuel Excise
• Cigarette and Tobacco Tax
• Sales Tax on Meals
• Alcoholic Beverage Excise
• Marijuana Retail Sales Tax
• Room Occupancy Excise Tax

FAQs

Do You Need Help Filing Your Massachusetts LLC Taxes?

All LLCs in Massachusetts must file taxes accurately, reliably, and on time. You can use accounting software that offers advanced automated tax filing and reporting features for LLCs. QuickBooks is one such software that we recommend.

QuickBooks offers comprehensive tax management tools that simplify complex filing tasks to ensure you file your federal and state taxes seamlessly.

Additionally, their services also provide options with expert guidance.

You can contact CPA tax specialists who offer individualized guidance and work with you to maximize your deductions.