What payroll deductions are employers required to withhold?

Massachusetts Payroll Tax Deductions Employers Must Withhold

In Massachusetts, employers are responsible for withholding specific payroll taxes from employee wages to comply with state and federal regulations. Understanding these requirements is essential for accurate payroll processing and maintaining operational compliance.

Required Payroll Deductions

• Federal Income Tax Withholding: Employers must withhold federal income tax based on the employee’s Form W-4 and IRS tax tables.
• Social Security Tax: Withhold 6.2% of wages up to the annual wage base limit. Employers must also match this amount.
• Medicare Tax: Withhold 1.45% on all wages, with no wage limit. Employers match this amount as well.
• Massachusetts State Income Tax: Withhold state income tax at a flat rate of 5% on employee wages. Adjustments may apply based on employee withholding certificates.
• Massachusetts Paid Family and Medical Leave (PFML): As of 2026, employers must withhold the employee portion of PFML contributions, which is typically 0.75% of eligible wages. Employers also contribute a separate share.

Additional Operational Considerations

• Unemployment Insurance (UI) Taxes: Employers pay Massachusetts UI taxes but do not withhold these from employee wages.
• Employee Classification: Properly classify workers as employees or independent contractors to determine withholding obligations.
• Recordkeeping: Maintain accurate records of all payroll deductions and deposits to ensure compliance with state and federal reporting requirements.
• Automation: Use payroll software that integrates Massachusetts tax rates and updates automatically to reduce errors and streamline compliance.

Employers should regularly review Massachusetts Department of Revenue updates and IRS guidelines to stay current with any changes in withholding rates or reporting requirements.