When it comes to financial planning, taxes are always a top concern. They can become even more tricky when someone lives in one state but works in another. Do you need to file a state return? What income gets reported where? If you’re one of the many who live in New Hampshire but work in Massachusetts, make sure to report your income correctly so you’re not overpaying this year.  

What income gets reported to Massachusetts?

As many in New England know, Massachusetts has an income tax. In 2024, the tax rate is 5%, 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. 

Like with the federal return, taxpayers are entitled to certain income tax deductions. Everyone receives a personal exemption of $4,400 ($8,800 total if married filing jointly) plus $1,000 per dependent. This is true whether you live in Massachusetts or just work in it. You also get a deduction for paying into Social Security (or a similar Massachusetts pension system), as well as for adding to your health savings account and giving to charity. 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 only work in Massachusetts and don’t live there, not all income is taxable on your Massachusetts return. Generally, only the income sourced in Massachusetts is taxable in Massachusetts. That means none of your investment income (dividends/capital gains) or interest is taxable in Massachusetts. More than that, if you split your working time between Massachusetts and New Hampshire, usually only a proportionate share of income for the time worked in Massachusetts is taxable by the state. As an easy example, if you worked 100 days total during the year and 50 were in Massachusetts and 50 were in New Hampshire, only half of your wages would be taxable in Massachusetts.  

Alternatively, if your employer reclassifies you as a New Hampshire employee, or better yet allocates your income between states on your pay stub and W-2, this additional tax can likely be avoided. If you are working mostly remotely in New Hampshire, it is worth asking your employer to record your income by state on your W-2. We have seen some employers do this automatically, but many are not aware of the tax considerations and have not. So it’s worth checking with your employer to see whether they can do this for you, if applicable.  

Another important consideration is that if your spouse does not work in the state, none of their income is taxable in Massachusetts. So, if you work in Massachusetts and your spouse is in New Hampshire, make sure you don’t include your spouse’s income on the Massachusetts tax return. You’ll be paying unnecessary taxes if you do! 

If you live in New Hampshire and work in Massachusetts, attributing additional income to Massachusetts can have a big tax impact. If your spouse works in New Hampshire and earns $100K and you inadvertently include their income, that’s about an extra $5K of taxes annually! With that tax savings, you could pay an additional amount to your retirement account (which is something we financial planners always think about!).  

A common mistake we see when we review Massachusetts nonresident tax returns is that your capital gains income, interest, and dividends should not be allocated to Massachusetts if you live in New Hampshire. The only income subject to Massachusetts tax is Massachusetts- sourced income, such as wages and rental property.  

What about New Hampshire taxes?

New Hampshire is known for not having an income tax. But there is a lesser-known tax that may be applicable to those residing in New Hampshire. Believe it or not, New Hampshire does have an interest and dividends tax (but not for long!). 

Similar to what happens in Massachusetts, interest and dividends are only taxable for those who live in New Hampshire, not those who work here but live in Massachusetts. If you live in Massachusetts and have dividend income, it’ll be taxable in Massachusetts instead of New Hampshire, even if you work in New Hampshire.  

If you’ve lived in New Hampshire all your life, you may not have known about this tax because it does not apply to everyone. The tax only applies if you earn more than $2,400 of interest and dividends if single, or $4,800 if filing jointly. If you do happen to earn more than those thresholds, New Hampshire imposes a 3% tax on those amounts. Wages from work are still not taxable — just the dividends and interest. The good news is that this tax has been repealed for tax years after 2024!

Should I live in New Hampshire or Massachusetts?

The decision regarding where to live is a complex one. As financial planners, we certainly care about the tax implications, but equally important is what’s going to make you happiest long term. Saving a few thousand dollars a year on taxes is great, but if that means you’ll be subject to an awful commute, those savings might not be worth it.  

However, looking through the narrow lens of financial planning, we have a few factors you should consider. 

  1. Where are you working now?

Where you work (and where you intend to continue to work) is the most important factor. If you and your spouse are already working in Massachusetts, moving to  New Hampshire probably won’t save you much on taxes. You might even end up paying more in taxes since New Hampshire is known for generally having a high property tax! 

However, if one spouse (or both!) works in New Hampshire and the other works in Massachusetts, there could be considerable tax savings. Moving to New Hampshire will allow the spouse who is working in New Hampshire to exclude their income from Massachusetts taxes, which would not be the case while living in Massachusetts. 

  1. 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 (AMT). However, this has become much less common for two reasons: 

First, the standard deduction doubled. As a taxpayer, you can deduct the greater of the standard deduction ($14,600 for individuals, or $29,200 for joint filers in 2024) or itemized deductions. With an increased standard deduction, this means you would need more “other deductions” to surpass this amount. 

Second, state taxes paid are 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, for you and your spouse, 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 $15,100 of deductions (charity, mortgage interest, and medical expenses above 7.5% of your income) to itemize.  

  1. Don’t forget about the budget!

Budgeting is one of the least exciting but arguably one of the most important aspects of a complete financial plan. Knowing where your money is going and why is crucial to saving and reaching your long-term financial planning goals. Since taxes are inevitable, saving money on them is often an overlooked item of your overall expenses. However, it is not the only expense to be concerned with, and you should review other expenses that come with where you decide to live. 


As mentioned before, commuting can add up to a large expense. When considering where to live, you should know how long the commute will be and how many miles you’ll be driving. This will have a direct impact on how much you pay for gas. But you should also consider whether you will need to pay any tolls, and the wear and tear on your car. If a long commute means that you will likely need to get a new car every five years instead of every 10, that’s a large expense that may be overlooked when preparing your budget because it is infrequent. 


It’s been said that time is money. A long commute can end up costing you more than anticipated if you don’t track it. As an example, if you have children and would be able to pick them up from school if you lived closer, but that is not an option commuting farther, you’ll now need to pay for additional after-school services. Or possibly the long commute during the week means you have less time to get errands and chores done. In turn, you may need to hire landscapers to take care of your yard instead of doing it yourself. Only you know how much you value your time and what you want to do with it. But considering possible additional expenses because of having less time is an important aspect of fine-tuning your budget

Next Steps 

The best way to be prepared for tax time is to keep good records throughout the year. Knowing what income is taxable — and where — is essential in knowing what to track. If you don’t have good records this year, that’s all right, because now you know what you’ll need going forward.  

Living in New Hampshire and working in Massachusetts can be tricky, but it doesn’t have to be. Doing some tax planning during the year and knowing the tax rules in each state are the first steps in making this tax season as painless as possible (and possibly save you some money on taxes this year too!).   

If you would like help reviewing your tax situation and your overall financial plan, we’d love to get in touch. Visit our Contact Page to schedule an appointment or reach out to our team.  


Other Tax- Related Articles: 

Does New Hampshire Have an Income Tax? What to Know About the Interest and Dividend Tax (milestonefinancialplanning.com) 

My Property Taxes Are What!? Understanding New Hampshire’s Property Tax 

Do You Rent Property in Massachusetts? A New Tax May Apply to You 

Make Sure Your Contractors Aren’t Employees! New Changes for MA Employers 

Massachusetts Taxpayers: First Tax Break in over 20 Years! (milestonefinancialplanning.com) 

Disclaimer: This is not to be considered investment, tax, or financial advice. Please review your personal situation with your tax and/or financial advisor. Milestone Financial Planning, LLC (Milestone) is a fee-only financial planning firm and registered investment advisor in Bedford, NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services and have unlimited access to our advisors. We receive no commissions or referral fees. We put our client’s interests first.  If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisors.  Advisory services are only offered to clients or prospective clients where Milestone and its representatives are properly licensed or exempt from licensure.

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