Taxes are always a top concern when it comes to financial planning. 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? This article will cover the ins and outs of your Massachusetts and New Hampshire taxes to ensure you are properly reporting your income to avoid surprises when you file your returns.

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.

Like 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 help offset your Massachusetts income. Fortunately, you don’t have to live there to take advantage of these tax-saving opportunities! Unfortunately, these exemptions and deductions are prorated if some of your income is not taxed in Massachusetts.

What if I work in Massachusetts but live out of state?

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.

Things get a little more complicated if you have stock options as part of your compensation package.

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.

What income should I avoid reporting on my Massachusetts return?

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. Doing so 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 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 in the long term. While saving 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 and your spouse work 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 the current tax law, paying state taxes is somewhat less disadvantageous than it was in recent years. Under the OBBBA, taxpayers who can itemize deductions may now be able to deduct much more in state and local taxes on their federal return than before. This reduces the sting of paying Massachusetts income taxes, at least for taxpayers who can take advantage of it. However, this still will not help everyone for two reasons:

First, the standard deduction remains relatively high. As a taxpayer, you can deduct the greater of the standard deduction ($16,100 for single individuals, or $32,200 for joint filers in 2026) or itemized deductions. With a high standard deduction, this means you still need enough “other deductions” to surpass this amount.

Second, the deduction for state and local taxes paid is no longer capped at just $10,000, but it is still limited. Under the OBBBA, the SALT deduction cap increased to $40,000 beginning in 2025, and for 2026 it is $40,400 ($20,200 for married taxpayers filing separately). The benefit also begins to phase down for taxpayers with modified adjusted gross income above $505,000 ($252,500 for married taxpayers filing separately), although it cannot be reduced below $10,000 ($5,000 for married taxpayers filing separately). This cap also includes other state and local taxes, like property taxes. This means that, unlike under the old $10,000 cap, a Massachusetts joint filer with more than $32,200 of deductible state and local taxes may be able to itemize even before adding mortgage interest, charitable contributions, or medical expenses, as long as the income phaseout does not apply.

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!