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Payroll Tax Overview for Massachusetts

Unlike many other states that still allow employers to file and pay payroll taxes by mail, Massachusetts has streamlined their payroll tax system and has mandated that most employers file and pay withholding taxes electronically[1] as well as file and pay unemployment taxes electronically.[2]

The mechanics of payroll tax law vary widely by state, so knowing how to file and pay payroll taxes in a timely manner can be challenging.  The following payroll tax overview should help give companies a better sense of the specific requirements in Massachusetts, assist them in filing taxes accurately and help payroll tax managers mitigate the penalties associated with not filing taxes in a timely and accurate manner.

Massachusettes 1

How to file and pay withholding taxes

The Massachusetts Department of Revenue (DOR) is responsible for collecting withholding taxes on behalf of the state treasurer.  State law requires the withholding of income tax from salaries and wages of all residents and for some non-residents.[3] The DOR offers a web portal called WebFile for Business, where employers can register for an account number, file tax returns and make payments online.  Most employers are required to file and pay electronically, and account numbers are typically provided within one to three days of registering.[4]

Because all employers must submit payments electronically, the only two payment methods available are (1) ACH credit and ACH debit through WebFile for Business or (2) Business Telefile (an alternative payment delivery system provided by phone).[5]

Different schedules must be followed for filing returns and paying withholding taxes depending on the total amount of tax employers expect to withhold from employees in a year.[6] Employers may be required to pay annually, quarterly or monthly based on their projected annual withholding tax.[7] The DOR also requires employers to electronically file a return even if no tax is due.[8]

Penalties and interest for withholding taxes

For withholding tax returns where the tax is paid late, the penalty is 0.5 percent of the unpaid tax shown on the return per month (maximum of 25 percent).[9] The interest for failure to pay on time is charged at the federal short-term rate (can change quarterly), plus 4 percentage points compounded daily.[10]

For withholding tax returns that are filed late, the penalty is one percent of the balance due per month (maximum of 25 percent).[11] For withholding tax returns that are paid late, the penalty is one-half of one percent of the unpaid tax shown on the return (maximum of 25 percent).[12] Taxpayers who do not file returns, make payments or submit data to the DOR electronically on time are subject to $100 or more penalties per return, payment or data transfer submitted incorrectly.[13]

Helpful tip: Hold on to your filing confirmation numbers to help avoid penalties for returns and payments that were submitted timely.  Returns must be filed electronically on or before the due date by midnight Eastern Time.  Upon completing the submission, employers will receive a confirmation number with a time and date stamp.[14]

Credits and refunds for withholding taxes

If an employer underpays withholding tax, the DOR requires employers to make an adjustment online through WebFile for Business.[15] Refunds of overpayments may be requested through WebFile for Business or by submitting the Application for Abatement/Amendment Return Form CA-6.[16]

How to file and pay unemployment taxes

Unemployment insurance (UI) taxes are collected by the Division of Unemployment Assistance Department (DUA).  In general, for-profit employers with employees working one or more days in 13 weeks during a year or pay wages of $1,500 or more during any quarter are liable for contributions to the Commonwealth unemployment compensation fund.[17] Some types of employers, including agricultural employers, domestic companies and out-of-state businesses, must meet certain thresholds before they are required to make UI contributions.[18]

Employers need to activate an account before the DUA can accept wage records and contribution payments.[19] The DUA provides UI Online, a self-service system that allows employers to manage their account and services.

When an employer makes a contribution, the amount is entered as a credit to the employer’s account.[20] When the DUA provides benefits to an employee, these benefits charges become debits to the account.[21] Employers must file their electronic unemployment and wage detail reports and pay contributions in full by the quarter due date in order to avoid interest and penalties.[22]

Penalties for unemployment taxes

When a quarterly employment and wage detail report is not submitted or is incorrectly submitted to the DUA, the amount of the liability may be assessed at 150 percent of the highest filed quarter.[23] Interest will accrue on unpaid principal at a rate of 12 percent per year based on the quarter due dates until fully paid.[24]

Below are other actions that the DUA can choose to take to help prevent and reduce the occurrence of overdue contributions:[25]

  • Prosecution of individuals and principals in corporations by the attorney general’s office
  • A minimum $10,000 fine ($50,000 maximum) for each quarter and/or a state prison sentence for a felony conviction on contribution evasion charges
  • A minimum $2,500 fine ($10,000 maximum) for filing but failing to pay
  • Levies on both a delinquent employer’s bank account and government funds owed
  • Liens on real estate
  • Assistance from Massachusetts Department of Revenue in locating unregistered employers
  • Civil complaints designated by DUA attorneys
  • Suspension of a delinquent employer’s liquor license
  • Random audits of employer accounts to ensure proper wage reporting
  • Public disclosure of delinquent employers that owe more than $5,000
  • Penalties and fines for evasion of payment of contributions and failure to report

As of 2014, employers began receiving a penalty if they failed to file their quarterly report within 45 days of the due date.[26] For more information on penalties assessed by the DUA, see this FAQ on Mass.gov.

 

Statement of Benefit Charges for unemployment taxes

Employers will receive a monthly “Statement of Benefit Charges” that itemizes all unemployment tax charges, credits and adjustments made for each week of the month.[27] Payroll tax managers should verify each benefit charge against their records to help protect their company against fraud, processing errors or other inaccurate charges. If an employer believes an account charge is incorrect, a protest must be filed within 30 days of the mailing date shown on the form.[28]
 

Learn More about ADP Employment Tax

 

Other resources

For additional resources, check out The Bridge Sponsored by ADP®, a new social networking community sponsored by ADP® that provides a unique peer-to-peer online forum for employers to interact, collaborate, communicate and share experiences and knowledge about a wide range of human capital management topics and their ADP products.  Here you can find the Massachusetts tax forum, as well as further details about the state’s tax employment documents and requirements.

The information provided in this blog post is for informational purposes only and not for the purpose of providing accounting, legal, or tax advice.  The information and services ADP provides should not be deemed a substitute for the advice of any such professional.  Such information is by nature subject to revision and may not be the most current information available.

[1] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html#filepay

[2] http://www.mass.gov/lwd/docs/dua/business/employer-handbook.pdf, pg. 16

[3]http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[4] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[5] http://www.mass.gov/dor/businesses/filing-and-reporting/electronic-payment-options.html

[6] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[7] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[8] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[9] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[10] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[11] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[12] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[13] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[14] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[15] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[16] http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/withholding-tax-guide.html

[17] http://www.mass.gov/lwd/unemployment-insur/resources/questions-and-answers/employers-and-businesses/unemployment-insurance.html

[18] http://www.mass.gov/lwd/docs/dua/business/employer-handbook.pdf

[19] http://www.mass.gov/lwd/docs/dua/business/employer-handbook.pdf

[20] http://www.mass.gov/lwd/docs/dua/business/employer-handbook.pdf

[21] http://www.mass.gov/lwd/docs/dua/business/employer-handbook.pdf

[22] http://www.mass.gov/lwd/docs/dua/business/employer-handbook.pdf

[23] http://www.mass.gov/lwd/docs/dua/business/employer-handbook.pdf

[24] http://www.mass.gov/lwd/docs/dua/business/employer-handbook.pdf

[25] http://www.mass.gov/lwd/unemployment-insur/resources/questions-and-answers/employers-and-businesses/unemployment-insurance.html

[26] http://www.mass.gov/lwd/unemployment-insur/employers/

[27] http://www.mass.gov/lwd/docs/dua/business/employer-handbook.pdf

[28] http://www.mass.gov/lwd/docs/dua/business/employer-handbook.pdf


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