When it comes to financial planning, taxes are always a top concern — and they can get even more complicated if you live in one state and work in another.  If you live in New Hampshire but work in Massachusetts, you might be wondering: Do I need to file a Massachusetts state return? What income should be reported where? It’s important to ensure you’re reporting your income correctly to avoid overpaying taxes this year.

What income gets reported to Massachusetts?

Massachusetts has a 5% state income tax, but there is also an extra 4% tax if your taxable income is over $1 million, which can include capital gains from home sales beyond the exemption for your personal residence.

If you live in Massachusetts, most income is taxable (wages, interest, dividends, etc.). However, some income, like Social Security or certain pensions, isn’t.

As with your federal return, Massachusetts taxpayers are eligible for various tax deductions. You’ll receive a personal exemption of $4,400 ($8,800 for married couples filing jointly), plus an additional $1,000 per dependent. Additionally, contributions to Social Security or a Massachusetts pension system, as well as contributions to health savings accounts or charitable donations, are also deductible. These deductions will offset your Massachusetts income, and you don’t have to live there to take advantage of them!

These exemptions and deductions are prorated if some of your income is not taxed in Massachusetts.

If you’re not a Massachusetts resident but you work in the state, you’ll be taxed only on income that is sourced in Massachusetts. For example, investment income like dividends or capital gains is not taxable in Massachusetts. Additionally, if you split your working time between Massachusetts and New Hampshire, only a proportionate share of your income for the days worked in Massachusetts will be taxed by the state. For instance, if you worked 100 days in total, with 50 days in Massachusetts and 50 days in New Hampshire, only 50% of your wages would be taxable in Massachusetts.

If you work remotely in New Hampshire, you may want to ask your employer to allocate your income between states on your W-2. Some employers may already do this automatically, but many are unaware of the tax implications, so it’s worth checking.

If your spouse doesn’t work in Massachusetts, their income isn’t taxable in the state. So, if you work in Massachusetts and your spouse works in New Hampshire, make sure you don’t include their income on your Massachusetts tax return, as this could result in unnecessary taxes.

Another common mistake we see when reviewing tax returns is reporting investment income like capital gains, interest, or dividends on your Massachusetts return. These types of income are not taxable in Massachusetts if you live in New Hampshire. Only Massachusetts-sourced income, such as wages or rental income, is subject to state tax.

What about New Hampshire taxes?

New Hampshire offers significant tax advantages, particularly with its absence of an income tax. Starting in the 2025 tax year, the state also eliminated its interest and dividend income tax. Previously, investment income in New Hampshire was taxed at a rate of 5%, but this tax has been gradually phased out in recent years. As a result, the tax benefits of living in New Hampshire have only become more appealing for residents.

Should I live in New Hampshire or Massachusetts?

Choosing where to live is more than just a financial decision; it’s about what will make you happiest long term. While saving on taxes is beneficial, it’s essential to weigh it against other factors like your commute. For example, the time and money spent commuting can quickly erode the financial savings from living in a lower-tax state.

However, from a financial planning perspective, there are a few key factors to consider:

1. Where are you working?

The state in which you work — and where your spouse works — plays a significant role in your decision. If both of you are working in Massachusetts, moving to New Hampshire may not offer much in terms of tax savings. In fact, New Hampshire has relatively high property taxes, which could offset any income tax savings.

But if one spouse works in Massachusetts while the other works in New Hampshire, moving to New Hampshire could result in substantial tax savings. The spouse working in New Hampshire would be able to exclude their income from Massachusetts taxes, which isn’t the case if you live in Massachusetts.

2. What about tax deductions?

While almost no one enjoys paying taxes, under current tax law paying state taxes is even less advantageous. You used to be able to deduct state taxes paid from your federal income taxes as long as you were able to itemize deductions and weren’t subject to the dreaded alternative minimum tax. However, this has become much less common for two reasons:

First, the standard deduction doubled with the 2017 Tax Cuts and Jobs Act. As a taxpayer, you can deduct the greater of the standard deduction ($15,000 for individuals, or $30,000 for joint filers in 2025) or itemized deductions. With an increased standard deduction, this means you need more “other deductions” to surpass this amount.

Second, the deduction for state and local taxes paid is capped at $10,000, whether you are filing a single or joint return. Even if you’re a high earner in Massachusetts who is paying thousands of dollars a year in Massachusetts taxes, the amount you can deduct is capped at $10,000. This cap also includes other state taxes, like property tax. This means a joint filer would have to come up with an additional $20,000 of deductions (charity, mortgage interest, and medical expenses above 7.5% of your income) to itemize.

3. Don’t forget about the budget!

Budgeting may not be the most exciting part of financial planning, but it’s one of the most important. Understanding where your money is going and why is essential for saving effectively and achieving your long-term financial goals. While taxes are an inevitable part of life, they’re often overlooked when it comes to overall budgeting. However, taxes are just one piece of the puzzle — the location you choose to live in brings its own set of expenses to consider.

Commuting, for example, can become a significant and often underestimated cost. Beyond the obvious expenses like gas and tolls, there are also indirect costs, such as wear and tear on your car or the need to replace it more frequently. Additionally, a long commute can impact your personal time, potentially leading to higher expenses for childcare or household services or even a decline in your work-life balance.

For example, if a long commute prevents you from picking up your kids from school, you may need to pay for additional after-school care. Alternatively, if your commute cuts into your free time, you may find yourself outsourcing tasks, like lawn care or home maintenance, that you’d otherwise do yourself. These factors can add up and should be factored into your budget.

Ultimately, only you can determine how much your time is worth and what you’re willing to trade off. But it’s crucial to account for any additional costs that come with less free time when fine-tuning your financial plan.

Next steps

The best way to be prepared for tax time is to keep good records throughout the year. Knowing which income is taxable and where to report it is crucial for avoiding costly mistakes. Even if you didn’t keep perfect records this year, you can start now and stay organized moving forward.

Living in New Hampshire and working in Massachusetts doesn’t have to be complicated. With the right tax planning and by understanding the rules in each state, you can streamline your filing process and potentially save money on taxes. A CPA can help alleviate the stress of tax filing by ensuring that your income is reported correctly, maximizing deductions, and providing guidance on complex state tax laws.

Stay informed of any changes that may affect your financial life by working with a financial advisor.

If you’d like help reviewing your tax situation and refining your overall financial plan, our team is here to assist. Reach out to us today to schedule an appointment, and let’s make sure your financial future is on the right track!