Massachusetts S Corporation Taxes

Unlike most states, Massachusetts imposes an additional tax on S corporation shareholders. This is known as the corporate excise tax.

The Massachusetts S corporation tax is a state-level excise tax levied on an S corporation’s net income. It is similar to a federal corporate tax but differs in some important respects. For example, the tax is imposed at the entity level rather than at the shareholder level. This means that the tax is more significant for larger entities with higher revenue.

S corporations are taxed as pass-through entities at the federal level and in most states. However, Massachusetts has additional tax rules for S corporations and their shareholders that are separate from those at the federal level. This includes a state income tax on S corporation earnings and an extra corporate excise tax on certain amounts. Shareholders of an S corporation pay individual income taxes on their share of the corporation’s earnings. In addition, S corporations may be subject to a Massachusetts corporate excise tax on certain taxable items. These taxes are collected at the point of sale and remitted to the Department of Revenue.

How to File a Massachusetts State Excise Tax Return as S Corp?

An S corporation that is required to file a Massachusetts state excise tax return must complete a pro forma United States corporate income tax return (Form 1120S) and any applicable schedules. The taxpayer must also attach a statement that describes the Massachusetts excise tax rules and provides a reconciliation of the entity-level excise tax with respect to the gross receipts reported on Form 1120S. The statement must also specify any accumulated adjustments account (AAA) balances and the method for allocating those amounts to the corporation’s taxable income for excise purposes.

Massachusetts State Excise Tax Exemption

Massachusetts State Excise Tax Exemption

Unfortunately, there is no complete exemption from Massachusetts S Corporation taxes. Like all corporations, S corporations are subject to the corporate excise tax in Massachusetts. However, there are some nuances and potential reductions available:

Credits: Various tax credits, like investment credit or research and development credit, can reduce the overall tax liability.

Partial Exemption for Public Benefit Corporations:

  • If your S corporation qualifies as a public benefit corporation, it may be exempt from a portion of the corporate excise tax.
  • Specific requirements and qualifications must be met for this exemption.

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