Massachusetts has a distinctive two-tier income tax structure. Most income is taxed at a flat rate of 5.00%, but a 4% surtax (the "Fair Share Amendment" or "millionaires tax," approved by voters in November 2022) applies to income exceeding $1 million, bringing the effective top rate to 9.00%. The $1 million threshold is indexed for inflation. This makes Massachusetts technically a graduated-rate state, though for the vast majority of taxpayers it functions as a flat 5% tax.

Massachusetts does not provide a standard deduction. Instead, the state offers personal exemptions of $4,400 for single filers and $8,800 for married couples, plus $1,000 per dependent. Massachusetts uses its own definition of gross income (based on federal AGI with modifications), and the exemptions are subtracted to arrive at taxable income. The absence of a standard deduction means that moderate-income earners pay the 5% rate on a larger share of their income than in states that offer a federal-level standard deduction.

Massachusetts does not tax Social Security benefits. The state also provides a pension income exemption for government pensions (federal, state, and municipal employees) — these are fully exempt from state tax. However, private pension income, 401(k) distributions, and IRA withdrawals are taxable at the 5% rate.

Massachusetts has a 6.25% sales tax with no local additions. Groceries, clothing under $175 per item, and prescription drugs are exempt. The clothing exemption is particularly notable — items under $175 are fully exempt, while only the amount exceeding $175 is taxable on more expensive items.

Property taxes in Massachusetts average approximately 1.12%, above the national average. The state limits property tax levy increases to 2.5% per year under Proposition 2-1/2, but overrides can be approved by local voters. High home values in Greater Boston push actual tax bills well above the national median despite the moderate rate.

Massachusetts's cost-of-living index is approximately 135, significantly above the national average. Greater Boston is the most expensive region, driven by housing costs and the presence of world-class universities and hospitals. Western Massachusetts (Springfield, Northampton) offers more affordable options.