Does Massachusetts Tax Your Tips and Overtime in 2026?

Massachusetts taxes tips and overtime pay in 2026. The Massachusetts Department of Revenue issued Technical Information Release (TIR) 26-4, confirming that Massachusetts personal income tax law does not adopt the federal One Big Beautiful Bill Act (OBBBA) deductions. Both tips and overtime remain subject to the state flat 5 percent tax rate.

Key takeaways for Massachusetts workers

• Massachusetts DOR TIR 26-4 requires taxpayers to add back federal tips and overtime deductions on Massachusetts Form 1.
• The state flat rate of 5 percent applies to Part B taxable income, including all tips and overtime.
• Your federal deduction on federal Schedule 1-A remains fully valid and untouched.
• Do not reduce Massachusetts Form M-4 withholding based on federal OBBBA deductions.

The Massachusetts fixed-date IRC conformity rule

Massachusetts General Laws Chapter 62 defines gross income by referencing the Internal Revenue Code as of a specific fixed date, historically January 1, 2022, with selective updates. Learn how different conformity systems operate in our state conformity guide and review regulatory notices on the Massachusetts Department of Revenue website.

Because Massachusetts did not pass legislation adopting the OBBBA provisions of the federal code, the federal deductions for tips and overtime under IRC sections 224 and 225 do not exist under Massachusetts tax law. Taxpayers starting their Massachusetts return from federal adjusted gross income must make a statutory modification. This policy maintains Massachusetts state tax collections from hospitality and hourly workforces.

Filing Massachusetts Form 1 Schedule Y

When preparing Massachusetts Form 1, taxpayers must account for any deductions claimed on federal Schedule 1-A. Massachusetts requires an addition to Part B gross income equal to the federal deduction.

For example, a healthcare worker in Worcester or a hospitality worker in Boston who claims $10,000 in qualifying overtime on federal Schedule 1-A reduces federal taxable income by $10,000. On the Massachusetts return, that $10,000 is added back on Schedule Y. The 5 percent Massachusetts state tax on that income is $500.

If a Boston restaurant server claims $20,000 in qualifying tips, federal taxable income drops by $20,000. On Massachusetts Schedule Y, the server enters $20,000 as an addition. Massachusetts levies its 5 percent tax on the entire $20,000 ($1,000 in state tax), while the server still keeps federal savings.

Withholding instructions for Massachusetts employees

Workers in Massachusetts should be careful with their payroll withholding forms. While you can adjust federal Form W-4 to capture your federal savings immediately, see our W-4 adjustment guide, you must not lower your state withholding on Massachusetts Form M-4.

If you claim extra allowances on Massachusetts Form M-4 to reflect federal deductions, your employer will withhold too little state income tax. That can trigger Massachusetts estimated tax underpayment penalties under M.G.L. c. 62B, s. 14 when you file your annual return. Keep your Form M-4 allowances aligned strictly with standard state personal exemptions.

Evaluating total net tax relief in Massachusetts

Even though Massachusetts taxes tips and overtime at 5 percent, workers still enjoy large net tax savings because federal tax rates range from 10 percent to 24 percent for most hourly employees. Calculate your exact numbers using our free OBBBA calculator.

A tipped bartender in Cape Cod earning $20,000 in qualifying tips might save $2,400 or more in federal income tax. Paying $1,000 in Massachusetts state tax still leaves $1,400 in net annual savings. The combined outcome still improves take-home income considerably compared to prior tax years.

Frequently asked questions

What does Massachusetts TIR 26-4 state?

TIR 26-4 is the official Massachusetts Department of Revenue guidance confirming that Chapter 62 does not incorporate federal OBBBA tips or overtime deductions, making both fully taxable in Massachusetts.

Can I deduct my tips on Massachusetts Schedule X?

No. Massachusetts Schedule X only permits specific state-authorized deductions. OBBBA deductions are not authorized under Massachusetts law.

Are Massachusetts employers required to report Box 12 codes TT and TP?

Yes. Massachusetts employers must follow federal Form W-2 specifications, including codes TP and TT. The Department of Revenue uses these codes to verify state compliance.

Does the Massachusetts millionaire tax apply to these earnings?

The 4 percent surtax under the Fair Share Amendment applies only to taxable income exceeding $1,000,000, which sits far above the OBBBA deduction phaseout thresholds.

This article is general information, not tax advice. Tax rules and payroll reporting require exact records. Consult a qualified CPA, Enrolled Agent, or tax attorney regarding your individual return.