The Tax Law for Living in New Hampshire but Working in Massachusetts

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Many people who live near state borders work in one state and live in another. This can raise a number of questions. For instance, if you live in New Hampshire and work in Massachusetts, should you pay income taxes in New Hampshire or Massachusetts? This is an important question to the many people in this situation. In fact, ​about 97,000​ people (​15 percent​) of New Hampshire's residents commute to Massachusetts every day for work.

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Income Tax in Massachusetts and New Hampshire

According to Mass.gov, for most, the income tax in Massachusetts is a flat ​5 percent​. That applies to everything, from wages to dividends. Those who earn more than ​$8,000​ from any source are obligated to file state income taxes. This tax is paid in addition to federal income taxes, which vary depending on how much you earn, explains the Wall Street Journal.

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New Hampshire is different from Massachusetts when it comes to taxes. This is because New Hampshire does not charge income tax on wages or salaries. They charge approximately ​5 percent​ on unearned income, which includes dividends, interest payments and capital gains. But if you live in New Hampshire while working in Massachusetts, where do you pay, and how much?

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Massachusetts Income Tax for NH Residents

If you're a New Hampshire resident working in Massachusetts, taxes can seem complicated, but they don't have to be that way. Essentially, you should pay Massachusetts income taxes for the wages or salaries that you earn while physically working in Massachusetts. That means that if you work in person in Massachusetts all the time, Massachusetts taxes all your income.

However, if you work from somewhere in New Hampshire ​50 percent​ of the time, Massachusetts only taxes ​50 percent​ of your income, even if you earn from the same employer. Therefore, it behooves New Hampshire residents employed by Massachusetts-based companies to work from home whenever possible.

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What is more, New Hampshire residents pay all their other taxes in New Hampshire, and those rates on capital gains, interest and other sources can differ. In addition to this, New Hampshire does not charge sales tax, which dramatically lowers the cost of living in the Granite State.

Pandemic Impact on Income Taxes

When the COVID-19 pandemic struck and forced millions of employees to work from their homes, Massachusetts faced a crisis. They were set to lose a substantial amount of income as thousands of New Hampshire residents worked from home. According to the current laws at the time, all that income would not be taxable in Massachusetts since employees were physically in New Hampshire.

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Massachusetts then rushed to pass emergency legislation to change that policy. They wanted to tax those employees of Massachusetts-based companies just as they had before, regardless of where they earned money.

New Hampshire challenged this attempt in courts (the federal government regulates interstate commerce). A lower court ruled in favor of Massachusetts temporarily, which expired in ​June of 2021​. The Supreme Court chose not to hear the case, in essence upholding the lower court's decision.

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Since tax laws can be very complex and nuanced, it's always a good idea to consult an accountant or tax professional if you have any questions about your specific situation. This is particularly important in 2021 to ensure you correctly file, given the changing legislation and the growing popularity of people working from home offices.

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