Business Taxes

Taxes, Taxes, Taxes

Once you start your business, you will have to start paying taxes to both the federal government and the Commonwealth of Massachusetts . The specific taxes you are required to pay depend on your type of business. You should consult with your accountant for specific assistance.

Federal Identification Number

If your business is a partnership or corporation (with or without employees), or a sole proprietorship with employees, the first thing you must do is obtain a federal identification number for federal and Massachusetts tax purposes.

To obtain a federal identification number, you must file Form SS-4, Application for Employer Identification Number, with the Internal Revenue Service. This form can be downloaded from the IRS Web site at www.irs.gov , or you can have a Form SS-4 sent to you by calling the IRS at (800) 829-1040.

Businesses based in Massachusetts , Connecticut , Maine , New Hampshire , Rhode Island , Vermont , and parts of New York , may fax a completed SS-4 to the IRS at (978) 474-9774, or obtain a federal identification number over the phone by calling (978) 474-9717.

Note: Sole proprietorships without employees (other than the owner), and which are not required to file excise, alcohol, tobacco, firearms, do not need to obtain a federal employer identification number. They can use their Social Security number for business tax purposes.

State Trustee Taxes

Trustee taxes are taxes that are collected and remitted by a business on behalf of the individuals who actually pay the taxes. In essence, the organization collecting and remitting the tax is serving as a trustee or agent. Sales, meals, withholding, and room occupancy taxes are state trustee taxes. There are also certain excise taxes you may be required to pay.

You are required to register with the Massachusetts Department of Revenue (DOR) for one or more of these taxes if you:

  • Have people working for you in Massachusetts
  • Withhold from a pension or annuity plan or from retirement distributions
  • Sell or rent taxable items in Massachusetts
  • Sell taxable telecommunications services in Massachusetts
  • Serve meals and/or beverages in Massachusetts
  • Provide lodgings in Massachusetts subject to the room occupancy excise
  • Make regular or frequent out-of-state purchases on which a use tax must be paid
  • Seek exemption from the Massachusetts sales and use tax as a charitable, nonprofit or governmental organization
  • Are licensed by any city or town in Massachusetts to sell alcoholic beverages and are organized under Chapter 180 of Massachusetts General Laws
  • Collect any of the convention center financing surcharges
  • Sell, acquire or import cigars and/or smoking tobacco or hold cigars or smoking tobacco for sale or consumption in Massachusetts .

For additional details on trustee tax filing requirements and assistance in determining which taxes apply to your business, please visit the Department of Revenue’s website, or contact DOR at (617) 887-6367 or toll-free in Massachusetts (800) 392-6089.

Unemployment Insurance

In general, if you have employees working one or more days in each of thirteen (13) weeks (need not be consecutive) during a calendar year, or if you pay wages of $1,500 or more in any calendar quarter, you are liable for contributions under the Massachusetts Employment and Training Law. A new business must notify the Massachusetts Division of Employment and Training (DET) immediately by filing an Employer Status Report (form 1110), enabling DET to establish an employer account and assign you a DET identification number.

Employers pay two separate contributions to fund unemployment insurance. The federal contribution is paid to the IRS under the Federal Unemployment Tax Act (FUTA). The state contributions paid to DET are deposited into the Massachusetts Unemployment Compensation Fund, and are used solely to pay benefits to eligible workers filing claims against Massachusetts firms.

Your state contribution is “experience rated.” How much you pay depends on a variety of factors, including the:

  • Size of your payroll
  • Number of employees
  • Amount of unemployment insurance benefits charged against your account
  • Amount of reserves in your account and in the Massachusetts Unemployment Compensation Fund

Federal Unemployment Insurance Tax

The Federal Unemployment Insurance Tax (FUTA) is currently 6.2 percent of wages paid during the year. The tax applies to the first $7,000 the employer pays each employee as wages during the calendar year.

Generally, you can take a credit against your FUTA tax for amounts you paid into the state unemployment funds. This credit cannot be more than 5.4 percent of taxable wages. The employer is responsible for FUTA tax. The employer cannot deduct it from the employee’s wages. Taxes are determined by federal Form 940.

For questions on FUTA, contact the IRS at (800) 829-1040.

Workers’ Compensation Law

The Department of Industrial Accidents (DIA) is responsible for overseeing the Workers’ Compensation system in Massachusetts . The Department can help you if you are an employer in Massachusetts , an injured worker, an insurer or an attorney.

The Employers’ Guide to Workers’ Compensation has been compiled by the Public Information Office to assist employers to better understand the Massachusetts Workers’ Compensation System. Included in this guide are sections on: who must be covered; what injuries must be reported; the reporting/claim process; reducing your insurance rate, and other questions and answers.

To receive your copy of the guide, please contact The Public Information Office, Department of Industrial Accidents, (800) 323-3249, ext. 470 or visit their Web site at www.state.ma.us/dia .

Payroll Taxes

The IRS, Social Security Administration and most states require employers to make appropriate withholdings from employee wages. They also require that withholding be deposited and a proper accounting made of such amounts withheld. Failure to make necessary tax payments in time can subject you to penalties and interest as well as potential liens against your property.

Employers are required to withhold from their employee’s payroll the following items:

  • Federal income tax
  • State income tax (this is a state “trustee tax”)
  • The employee’s share of Social Security and Medicare taxes (FICA)

Additionally, employers are liable for the following taxes, which are related to or based upon payroll:

  • Federal unemployment tax (FUTA)
  • State unemployment insurance
  • The employer’s share of Social Security and Medicare taxes (FICA)

New requirements exist for filing certain information returns on magnetic media to the IRS depending upon the type of form and number of forms to be filed. Substantial penalties exist for failure to file on magnetic media if such reporting is required.

New Hire Reporting Law

All employers, regardless of size or type of business, are required by law to report all newly hired employees, employees returning to work after 30 days, and independent contractors who will be earning $600 or more to the Massachusetts Department of Revenue (DOR) within 14 days of hire. This information is then compared to DORs database of individuals who are required to pay child support. When there is a match, DOR notifies the employer to withhold child support and remit the funds to DOR for distribution to families entitled to support. The information is also used to combat fraud in programs run by various state and federal agencies.