Massachusetts Payroll Compliance — Tax Year 2025

1. Scope

This skill covers Massachusetts state employer payroll compliance obligations for tax year 2025, where the employer either (a) is domiciled in Massachusetts, (b) maintains a place of business in Massachusetts, or (c) employs one or more Massachusetts residents performing services in Massachusetts. The skill is designed for use by an Enrolled Agent, CPA, or attorney acting as the reviewer of record under Circular 230 §10.34, and assumes that a federal payroll skill (handling Form 941, Form W-2, Form W-3, FUTA Form 940, FICA, and federal income tax withholding) is loaded separately in the workflow.

In scope:

• Massachusetts Personal Income Tax (PIT) withholding on wages under M.G.L. c. 62B §2, including the 5% flat rate, the 4% millionaire surtax under c. 62 §4(d), and the 5% supplemental withholding rate.
• Form M-4, the Massachusetts state employee withholding exemption certificate.
• Massachusetts Paid Family and Medical Leave (PFML) under M.G.L. c. 175M, including the 0.88% combined contribution rate for calendar 2025, the 25-employee threshold under §6 that triggers the employer share, and the PFML quarterly return.
• Massachusetts State Unemployment Insurance (SUI) under M.G.L. c. 151A, including the $15,000 taxable wage base, the 0.94%–14.37% experience-rated schedule (Schedule E for 2025), and the new-employer rate of 1.45%–3.30%.
• Employer Medical Assistance Contribution (EMAC) under M.G.L. c. 149 §189 at 0.34% on the first $15,000 of wages per employee.
• Universal Health Insurance (UHI) supplemental EMAC for non-compliant employers under c. 149 §189A (sunset 2019, residual exposure described below for catch-up assessments).
• Form M-941 (and the small-employer M-941A annual variant) for state withholding remittance, plus the Form WR-1 quarterly Unemployment Insurance wage report, plus the Form M-3 annual reconciliation.
• Massachusetts Health Connector employer reporting requirements for ALEs (50+ FTE) under the federal ACA, including the Form 1094-C/1095-C interface and the residual MA Health Care Reform statute reporting under M.G.L. c. 118H.
• Massachusetts Earned Sick Leave under M.G.L. c. 149 §148C (40 hours/year accrual; paid for employers with 11+ employees).
• Pay frequency rules under M.G.L. c. 149 §148 (weekly or bi-weekly).
• Wage Act §148 triple-damages liability for unpaid wages, untimely wages, and unauthorized deductions, including the §150 private right of action.
• Domestic Workers' Bill of Rights under M.G.L. c. 149 §190.
• Worker classification under the M.G.L. c. 149 §148B three-prong ABC test (the most restrictive independent contractor test of any US state).
• Pay Equity Act under M.G.L. c. 149 §105A (salary history ban effective July 1, 2018, plus mandatory salary range disclosure effective October 29, 2025 under the Frances Perkins Workplace Equity Act, c. 141 of the Acts of 2024).

Out of scope and deferred to other skills:

• Federal payroll: deferred to the federal payroll skill (Form 941, W-2/W-3, Form 940 FUTA, federal Form 1099-NEC). This skill assumes federal payroll is handled.
• Massachusetts corporate excise tax: deferred to ma-corporate-excise.
• Massachusetts personal income tax for the individual filer: deferred to ma-income-tax.
• Multi-state withholding allocation for telecommuters not specifically involving MA residents: deferred to the federal multi-state payroll skill.
• Massachusetts paid sick time accrual mechanics for employers with under 11 employees (unpaid sick time still required, but the accrual mechanics differ — out of scope here beyond a high-level note).
• Workers' compensation insurance under M.G.L. c. 152 (separate compliance regime, not a tax).
• The MA Tipped Wage Act and tip pool rules under c. 149 §152A.

Loading contract: this skill MUST be loaded alongside us-tax-workflow-base v0.2 or later. It supplements but does not replace a federal payroll skill.

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2. Massachusetts Personal Income Tax Withholding

2.1 The 5% flat rate and the millionaire surtax

Massachusetts imposes a flat 5.0% personal income tax on Part B wage income under M.G.L. c. 62 §4(b) for tax year 2025. This is the rate that drives ordinary state income tax withholding from wages.

Layered on top, effective January 1, 2023 by Article XLIV of the Massachusetts Constitution (the "Fair Share Amendment", ratified November 8, 2022), the state imposes an additional 4% surtax on Part B taxable income exceeding $1,000,000 indexed for inflation. For tax year 2025 the threshold is $1,083,150 (the indexed amount published by the Department of Revenue in Technical Information Release TIR 24-13). Combined top marginal rate on the slice above $1,083,150 is therefore 9.0%.

Wage withholding mechanics for the surtax under TIR 23-2 and Circular M (the MA employer withholding tables) — applicable to 2025:

• Employers are NOT required to withhold the 4% surtax based on a single employee's wages with that employer alone. The threshold is computed on the employee's total Part B income for the year, including spouse income on a joint return, and the employer typically does not know that figure.
• However, an employee may request additional withholding for the surtax on Form M-4 line 5 ("additional amount you want withheld"). The skill should flag high earners (W-2 expected ≥ $900,000 from this employer) and recommend that the employee elect surtax withholding to avoid an underpayment penalty on the Form 1, Schedule 4% surtax line.
• The surtax is reconciled by the individual on Form 1 Schedule 4% at year end — the employer's payroll system does not need to compute it automatically, but the reviewer must coach the high-earner employee.

2.2 Supplemental wage withholding

Massachusetts applies a flat 5% withholding rate to supplemental wages (bonuses, commissions, severance, awards, retroactive raises) under Circular M and Regulation 830 CMR 62B.2.1. There is no aggregate-method alternative as exists in federal supplemental withholding — Massachusetts is flat at 5% on supplemental payments paid separately from regular wages.

If the supplemental payment is combined with regular wages in a single payment, the employer applies the regular Circular M withholding tables (percentage method or wage-bracket method) to the combined amount.

If a supplemental payment to a high earner is reasonably expected to push the recipient over the $1,083,150 surtax threshold, the employer may voluntarily withhold an additional 4% on the excess slice if requested by the employee on Form M-4. Otherwise the supplemental rate is 5%.

2.3 Form M-4 — state employee withholding certificate

Form M-4 (Massachusetts Employee's Withholding Exemption Certificate) captures the information needed to compute MA withholding. It is NOT the federal Form W-4. Massachusetts decoupled from the redesigned (2020+) federal Form W-4 and requires its own certificate. Key fields:

• Line 1: filing status (single / married). Married filing separately is treated as single for MA withholding.
• Line 2: number of personal exemptions ($4,400 each for 2025).
• Line 3: dependent exemptions ($1,000 each).
• Line 4: age 65+ or blind additional exemptions ($700 each).
• Line 5: additional amount to be withheld per pay period.
• Line 6: claim of complete exemption (for taxpayers expecting no MA liability — narrow eligibility).

If an employee fails to file Form M-4, the employer must withhold as if the employee is single with zero exemptions under DOR Directive 92-2.

A new Form M-4 is required when an employee's circumstances change (marriage, divorce, birth, death of dependent, change to additional withholding). Employers should require an annual refresh as a best practice, though state law does not mandate annual reissue.

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3. Form M-941 — Massachusetts Withholding Return

3.1 Filing frequency and form variants

Massachusetts uses a tiered M-941 filing system keyed to the employer's prior-year MA withholding liability. The Department of Revenue assigns a filing frequency at registration and reviews it annually:

• Annual filer (Form M-941A): employers with prior-year MA withholding of $100 or less. Single return due January 31 of the following year.
• Quarterly filer (Form M-941 quarterly): employers with prior-year withholding of $101 to $1,200. Returns due April 30, July 31, October 31, January 31.
• Monthly filer (Form M-941): employers with prior-year withholding of $1,201 to $25,000. Returns due by the 15th of the following month.
• Quarter-monthly / weekly filer: employers with prior-year withholding over $25,000. Returns due within 3 business days of each quarter-monthly period (M-941W).

All Massachusetts withholding returns must be filed electronically through MassTaxConnect; paper Form M-941 has been discontinued for periods beginning on or after January 1, 2010 under DOR Directive 09-3, with limited exceptions for taxpayers who obtain a hardship waiver.

3.2 Form M-3 annual reconciliation

Form M-3 (Reconciliation of Massachusetts Income Taxes Withheld for Employers) is the annual reconciliation between (a) total MA tax withheld per the four quarterly M-941 filings (or twelve monthly filings) and (b) total MA tax withheld as shown on Forms W-2 and Forms 1099 issued for the year. Due January 31 with the W-2s.

The reconciliation must tie to the penny. The most common reviewer-flagged M-3 reconciliation breaks are:

• Late-issued bonus checks with MA withholding posted to the wrong period.
• Employee residence change mid-year not reflected in MA wages on W-2 Box 16.
• Third-party sick pay where the insurer reported MA withholding but the employer did not include it on M-941 quarterlies.
• Excess Social Security wages credited as M-941 withholding by data-entry error.

The Form M-3 reconciliation should be performed BEFORE issuing W-2s, not after, because reissuing W-2c forms after Form M-3 is filed creates a cascade of amended filings.

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4. Paid Family and Medical Leave (PFML)

4.1 Statutory framework

The Massachusetts PFML program was established by c. 121 of the Acts of 2018 (the "Grand Bargain"), codified at M.G.L. c. 175M, and is administered by the Department of Family and Medical Leave (DFML) within the Executive Office of Labor and Workforce Development. Benefits commenced January 1, 2021 for medical leave and bonding leave, and July 1, 2021 for family caregiving leave.

Covered individuals: every W-2 employee in Massachusetts is covered regardless of employer size. 1099-MISC/NEC contractors are covered ONLY if the contractor represents more than 50% of the employer's MA workforce (the "covered contract worker" test under 458 CMR 2.04(2)).

4.2 2025 contribution rate and split

The combined PFML contribution rate for calendar year 2025 is 0.88% of each employee's eligible wages up to the Social Security wage base ($176,100 for 2025). DFML resets the rate annually under c. 175M §7(c); the 0.88% figure was published in the DFML rate notice dated October 11, 2024.

The 0.88% breaks into two components:

• Medical leave contribution: 0.70% of eligible wages.
• Family leave contribution: 0.18% of eligible wages.

The maximum permissible split between employer and employee is fixed by statute:

Component	Maximum employee share	Maximum employer share
Medical (0.70%)	40% = 0.28%	60% = 0.42%
Family (0.18%)	100% = 0.18%	0% = 0.00%
Combined (0.88%)	0.46% max from employee	0.42% min from employer

Wait — the statute caps the employee share at 40% of the MEDICAL component and 100% of the FAMILY component, which yields a maximum employee deduction of 0.28% + 0.18% = 0.46%, not the 0.29% figure in the user request. The 0.29% figure represents the post-2024 rate at a particular split. Let me restate the current 2025 numbers carefully:

For 2025 specifically, the standard maximum employee deduction is:

• Medical employee share: 0.28% (40% × 0.70%)
• Family employee share: 0.18% (100% × 0.18%)
• Total maximum employee deduction: 0.46%

The remaining 0.42% (the medical employer share) is paid by the employer ONLY if the employer has 25 or more covered individuals (see §4.3 below).

4.3 The 25-employee threshold — AUDIT FLASH POINT

Under M.G.L. c. 175M §6, the employer is responsible for the employer share of the medical contribution (the 0.42% slice) ONLY if the employer employs 25 or more "covered individuals" averaged across the four quarters ending on September 30 of the prior calendar year. This calculation includes all W-2 employees in Massachusetts plus 1099-MISC contractors who themselves represent more than 50% of the MA workforce.

AUDIT FLASH POINT: The 25-employee test is calculated on the average-of-four-quarters basis ending September 30 — NOT on a current snapshot, NOT on a calendar-year average, NOT on a full-time-equivalent basis. Every year the DFML re-runs the threshold determination from prior-year UI wage records (the WR-1 filings) and re-classifies employers.

Employers near the threshold (typically the 20–30 employee band) should be flagged annually because:

1. Crossing into the "25+" bracket increases the employer's payroll tax cost by 0.42% × MA payroll on every paycheck for the following year.
2. Crossing OUT of the "25+" bracket (downsizing) eliminates the employer obligation, but the employer must REMEMBER to stop the employer-share remittance. Continued over-remittance is recoverable but only via an amended return.
3. The DFML's classification can be appealed. We have seen DFML classification errors where seasonal workers (e.g., camp counselors, ski-resort employees) were double-counted in the test period, pushing an employer over the threshold incorrectly.

For employers under 25 covered individuals: the employer pays NOTHING. The employee pays 0.46% of their own wages via payroll deduction (the full employee share for both components). The employer still must withhold, remit, and report — the employer is the conduit even when not the funder.

4.4 Wage cap

PFML contributions apply only up to the federal Social Security wage base. For 2025 that is $176,100 (per SSA news release dated October 10, 2024). Wages above $176,100 are not subject to PFML withholding.

This creates a planning quirk: for a high-earner at $250,000, the PFML contribution caps out at $176,100 × 0.46% = $810.06 employee share for 2025, with no further deduction once the cap is hit. Payroll systems must properly track YTD PFML wages and stop the deduction.

4.5 Private plan exemption

Under c. 175M §11, an employer may obtain DFML approval to provide PFML benefits via a private insurance policy in lieu of state PFML. Approved private plans must provide benefits at least as generous as the state plan. Employers with approved private plans do NOT remit PFML contributions to the state — but they MUST file the quarterly PFML return showing zero state liability and report private-plan coverage on their employee notices.

Private plan exemptions require annual renewal and a $1,000 bond. The exemption is more common with large employers (3,000+ employees) that already self-insure short-term disability. For our typical 11–50 employee clients, the state plan is almost always more economical.

4.6 PFML quarterly return mechanics

PFML contributions are reported and remitted on the DFML quarterly return filed through MassTaxConnect. Due dates: April 30, July 31, October 31, January 31 for the prior calendar quarter. The return reconciles to the employer's UI wage report (Form WR-1) — DFML cross-checks PFML wages against UI wages and issues discrepancy notices for variances over $100 per employee.

Employee notice requirement: under c. 175M §4, every employer must distribute the DFML-issued employee notice within 30 days of hire and post the workplace poster (English plus the five most prevalent non-English languages of the workforce).

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5. State Unemployment Insurance (SUI / DUA)

5.1 Wage base and rate schedule

Massachusetts SUI is administered by the Department of Unemployment Assistance (DUA) under M.G.L. c. 151A. The 2025 SUI taxable wage base is $15,000 per employee per calendar year — unchanged since 2018, and notably one of the lowest in the United States.

For calendar 2025, Massachusetts operates under Schedule E of the experience rating system (announced by DUA in November 2024). Schedule E yields:

• Minimum experience rate: 0.94%
• Maximum experience rate: 14.37%
• New-employer rate (most industries): 1.45%
• New-employer construction rate: 6.72% (special category under c. 151A §14(i) for construction employers in their first three years).

Most new non-construction employers in Massachusetts begin at 1.45% for their first three years; a non-construction services employer (e.g., a software firm) can expect to remain near 1.45% during the experience-rating build period. Construction employers begin in the 3.30%+ range.

5.2 COVID Recovery Assessment (residual exposure)

For 2025, Massachusetts continues to layer the COVID-19 Recovery Assessment (a separate per-employer surcharge enacted by c. 9 of the Acts of 2021 to repay the federal Title XII loan and replenish the UI trust fund). The 2025 COVID-19 Recovery Assessment rate ranges from about 0.00% to 4.46% depending on the employer's UI rate class. New employers pay approximately 1.80%.

Combined SUI + Recovery Assessment can therefore push the effective unemployment-tax burden well above the headline 14.37% maximum.

5.3 Form WR-1 — quarterly UI wage report

DUA requires every Massachusetts employer to file Form WR-1 (Employment and Wage Detail Report) electronically through the UI Online portal each quarter. Due dates align with M-941 quarterly: April 30, July 31, October 31, January 31. Penalties under c. 151A §14P apply for late or incomplete filing — currently $25 per employee with a minimum $100 penalty.

The WR-1 reports:

• Each employee's SSN, full name, total gross wages, MA wages (if employee is multi-state), and hours worked.
• Aggregated totals reconciled against UI tax due.
• A field for "workforce headcount" used by DFML to verify the PFML 25-employee threshold determination.

Cross-reference: the WR-1 employee count drives the PFML 25-employee threshold (see §4.3). Misreporting hours or misclassifying contractors as employees on WR-1 has cascading effects across SUI rates, PFML obligation, and the EMAC base.

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6. Employer Medical Assistance Contribution (EMAC)

6.1 Statutory basis

The EMAC was reinstated by c. 110 of the Acts of 2017 ("EMAC II") and continues under M.G.L. c. 149 §189 at the 0.34% rate on the first $15,000 of each employee's wages per calendar year, matching the SUI wage base.

Maximum EMAC per employee per year: $15,000 × 0.34% = $51.00.

6.2 Exemptions

EMAC does not apply to:

• Employers in their first three years of operation (new-employer exemption under §189(c)).
• Employers with five or fewer employees.
• Wages paid to employees covered under federal employment programs (e.g., federal trainee positions).

6.3 EMAC Supplement (formerly UHI supplemental)

The EMAC Supplement (the "UHI supplemental" referenced in the user request) was a temporary surcharge under c. 149 §189A imposed on employers whose non-disabled employees obtained subsidized coverage through MassHealth or the Health Connector ConnectorCare program. The supplement ran calendar 2018 and 2019 only and sunset on December 31, 2019.

Residual exposure to be aware of for 2025 work:

• DUA continues to collect on EMAC Supplement assessments issued during 2018–2019, including penalty and interest. Successor liability under c. 62C §32 transfers EMAC Supplement liability to acquirers of MA businesses with unpaid balances from that period.
• During M&A due diligence on a MA employer formed before 2020, the reviewer should request a DUA payoff statement covering EMAC Supplement for 2018 and 2019 plus interest accrued to closing.

For 2025 forward, there is no UHI supplemental — only the standard EMAC at 0.34%.

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7. Massachusetts Earned Sick Leave

Under M.G.L. c. 149 §148C (enacted by ballot Question 4 in November 2014, effective July 1, 2015), every Massachusetts employer of any size must provide earned sick time at the rate of one hour for every 30 hours worked, up to a minimum of 40 hours per calendar year.

The pay obligation depends on employer size:

• Employers with 11 or more employees: sick time is PAID at the employee's regular rate of pay.
• Employers with 10 or fewer employees: sick time is UNPAID but still job-protected and accrued.

The 11-employee headcount is determined on a per-week basis: an employer is "11+" for a calendar year if it had 11+ employees for 20 or more weeks during either the current or preceding calendar year (mirroring the FUTA 20-week test under IRC §3306(a)).

Sick time may be used for:

• The employee's own illness, injury, or medical appointment.
• Care of the employee's child, spouse, parent, or parent of a spouse.
• Addressing the psychological, physical, or legal effects of domestic violence on the employee or the employee's child.
• Routine medical appointments of the employee or the employee's child, spouse, parent, or parent of a spouse.

Carryover: up to 40 hours may be carried over to the following year, but the total available in any year remains capped at 40 hours unless the employer's policy is more generous.

Coordination with PFML: earned sick time is SEPARATE from PFML. An employee may use earned sick time for short-term illness (1–3 days) and PFML for longer-term medical leave (over 7 days, the PFML waiting period). Employers may not require employees to exhaust earned sick time before applying for PFML.

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8. Pay Frequency and the Wage Act — §148 Triple Damages

8.1 Pay frequency under M.G.L. c. 149 §148

Massachusetts law requires that employees be paid at least once per week (weekly pay) UNLESS one of the following exceptions applies:

• Bi-weekly pay is permitted if the employer obtains the employee's consent and complies with timely-payment rules. Most office and professional employees in Massachusetts are bi-weekly, which is a long-standing practice but technically requires consent under the current statute as interpreted by the Attorney General's Fair Labor Division in 2018 guidance.
• Semi-monthly and monthly pay are NOT permitted for most workers (limited exceptions for casual employees and bona fide executive, administrative, or professional employees as defined in 940 CMR 27.03).

Timing of payment:

• Wages must be paid within 6 days of the end of the pay period for workers paid weekly or bi-weekly.
• For workers paid weekly with a Saturday cut-off, wages must be paid by the following Friday.
• Terminated employees: wages are due on the day of discharge if the discharge is involuntary, and on the next regular payday if the employee resigns. Failure to pay on the day of discharge is a strict- liability Wage Act violation.

8.2 The Wage Act — §148 triple-damages liability — AUDIT FLASH POINT

AUDIT FLASH POINT: M.G.L. c. 149 §150 provides that an employee who prevails on a §148 Wage Act claim is entitled to MANDATORY treble damages plus attorney's fees and costs. The treble-damages remedy is not discretionary; the SJC confirmed this in Reuter v. City of Methuen, 489 Mass. 465 (2022), which held that even where an employer pays the disputed wages BEFORE the employee files suit, the employee is still entitled to treble damages on the late-paid amount as a matter of right.

What this means in practice:

1. Late final paycheck after termination: a $5,000 final-pay error becomes $15,000 in damages plus attorney's fees. Settlement multiples of 3× to 5× the underlying wage error are typical because the fee- shifting statute exposes the defendant to plaintiff attorney's fees that often exceed the wage damages themselves.
2. Misclassification of an employee as an independent contractor (see §10 below) creates Wage Act exposure on every paycheck that should have been paid — overtime, sick time, holiday pay, etc. — for the entire limitations period (3 years under §150A).
3. Improper deductions from wages (e.g., for cash-register shortages, uniform costs, tip pooling violations) are themselves Wage Act violations subject to treble damages even if the underlying deduction was small.
4. Failure to pay accrued unused vacation on termination is a Wage Act violation; the SJC held vacation is "wages" under §148 in Electronic Data Systems Corp. v. Attorney General, 454 Mass. 63 (2009).

Reviewer protocol when scoping a new MA payroll engagement:

• Always ask whether any employees have been terminated in the prior 3 years and whether final paychecks were issued on the day of discharge.
• Review the standard offer letter / handbook for any "use it or lose it" vacation policy — Massachusetts permits a use-it-or-lose-it policy PROSPECTIVELY (Attorney General Advisory 99/1) but not retroactively; any accrued-but-unused vacation as of separation is wages.
• Audit historical 1099 contractors against the §148B ABC test (see §10); any misclassified contractor is a treble-damages exposure on accrued wages.
• Flag any deduction from wages other than statutorily-authorized deductions (taxes, court-ordered garnishments, employee-elected benefits with written authorization).

The Wage Act is enforced by the Attorney General's Fair Labor Division, which issues administrative complaints, and by private right of action under §150. Most enforcement is private — Massachusetts plaintiffs' bar includes specialty Wage Act firms that aggressively pursue class actions on unpaid commissions, misclassified contractors, and late final paychecks.

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9. Pay Equity Act — Salary History Ban and Range Disclosure

9.1 The 2018 salary history ban — AUDIT FLASH POINT

The Massachusetts Pay Equity Act, M.G.L. c. 149 §105A, was enacted by c. 177 of the Acts of 2016 and took effect July 1, 2018. Among its provisions:

• Employers may not ask job applicants about their salary history before making an offer of employment, including the offer's compensation terms (§105A(c)(2)). This applies to written applications, verbal interviews, background-check questionnaires, and third-party recruiter inquiries.
• Employers may not screen candidates based on prior wages or salary history.
• Employers MAY confirm wage history AFTER a written offer has been extended that includes specific compensation terms (the "permissible confirmation" rule).
• Employers may not prohibit employees from discussing their own wages with co-workers (anti-secrecy clause under §105A(c)(1)).

AUDIT FLASH POINT: Salary history violations carry a private right of action under §105D with damages of up to double the difference in wages plus attorney's fees and costs. A three-year statute of limitations applies. We have seen plaintiffs' counsel use the salary history ban to bootstrap broader pay-equity class actions because the ban removes the employer's traditional defense of "we paid her less because she was paid less at her prior job."

Reviewer protocol:

• Review the client's standard employment application for any salary- history field. The field must be removed.
• Review the client's ATS (applicant tracking system) for salary-history prompts.
• Review the client's standard background-check release form — many third-party background-check vendors include salary history as a default field that must be turned off for MA candidates.
• Interview the client's hiring managers on what they ask in interviews. Anecdotal client feedback shows that hiring managers often slip into salary-history questions despite formal compliance at the application level.

9.2 The 2024–2025 Frances Perkins Workplace Equity Act — salary range disclosure

The Frances Perkins Workplace Equity Act (c. 141 of the Acts of 2024, signed July 31, 2024) added two new requirements under M.G.L. c. 149 §29A and §105E:

• Salary range disclosure (effective October 29, 2025): employers with 25 or more employees must post a "pay range" (the salary or hourly wage range that the employer reasonably and in good faith expects to pay) on every job posting for a position based in Massachusetts. The same applies to internal promotions and transfers.
• EEO-1 data filing (effective February 1, 2025): employers with 100 or more employees in MA that are required to file federal EEO-1, EEO-3, or EEO-5 reports must also file aggregated workforce demographic and pay data with the Massachusetts Secretary of the Commonwealth annually.

Both new requirements are enforced by the Attorney General's Office. First-year violations are subject to warning only; second-year violations carry fines up to $500, third-year $1,000, fourth-year $25,000.

For 2025 work, the reviewer should:

1. Confirm whether the client has 25+ MA employees (triggering range disclosure starting October 29, 2025) and review job postings published on or after that date for compliance.
2. Confirm whether the client has 100+ MA employees (triggering EEO-1 data filing). The first MA filing was due February 1, 2025 reflecting 2024 calendar-year workforce data.

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10. Worker Classification — The §148B ABC Test

Massachusetts has the most stringent independent contractor test of any US state. Under M.G.L. c. 149 §148B, an individual performing services for another is presumed to be an employee unless the putative employer proves ALL THREE prongs of the ABC test by a preponderance of evidence:

• Prong A — Control: the individual is free from control and direction in the performance of the service, both under the contract and in fact.
• Prong B — Outside the usual course: the service is performed outside the usual course of the business of the employer.
• Prong C — Independent trade: the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.

Prong B is the killer. The SJC's interpretation in Sebago v. Tutunjian Enterprises, 471 Mass. 321 (2015) and Athol Daily News v. Board of Review, 439 Mass. 171 (2003) makes Prong B a near-impossibility for any service that is recognizably part of the client's business. Examples of Prong B failures:

• A delivery service classifying drivers as contractors fails Prong B because driving deliveries is the usual course of a delivery service.
• A cleaning company classifying housekeepers as contractors fails Prong B because cleaning is the usual course of a cleaning company.
• A software firm classifying programmers as contractors fails Prong B unless the programmer is doing work demonstrably distinct from the firm's normal product engineering (e.g., a one-off marketing website).

Consequences of misclassification:

• Wage Act treble damages on all unpaid overtime, sick time, vacation, and other employee-only benefits going back 3 years (§9 above).
• SUI back-assessments plus penalties under c. 151A §14.
• PFML back-assessments under c. 175M.
• EMAC back-assessments under c. 149 §189.
• Workers' compensation premium back-charges under c. 152.
• Federal exposure under IRC §3509 and §530 if no §530 safe harbor.

The federal "right to control" test (Rev. Rul. 87-41) and the FLSA economic-realities test are NOT controlling in Massachusetts. A worker who is a contractor for federal tax purposes can still be an employee for Massachusetts purposes — and frequently is.

Reviewer protocol on misclassification:

• Always ask the client for a list of all 1099-paid workers in MA over the last 3 years.
• Apply the §148B test prong-by-prong. If Prong B fails for any worker, recommend reclassification going forward AND advise the client to consult employment counsel on remediation of historical exposure.
• Document the §148B analysis in writing — the client may need it for an audit or litigation defense.

Special exception: certain real estate salespersons, certain insurance agents, and certain franchisees are statutorily excluded from §148B by operation of other statutes. This skill does not cover those exclusions.

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11. Domestic Workers

Under the Massachusetts Domestic Workers' Bill of Rights, M.G.L. c. 149 §190 (enacted c. 148 of the Acts of 2014, effective April 1, 2015), domestic workers have separate substantive protections layered on top of the general wage-and-hour statutes:

• Definition: a "domestic worker" is an individual paid to perform work of a domestic nature in or about a private home — including childcare, housekeeping, cooking, eldercare, and companion services — and excluding casual babysitters (under 16 years of age or working under 18 hours/week intermittently).
• Written agreement required: an employer of a domestic worker who works 16+ hours per week must provide a written employment agreement specifying wages, work hours, scheduled paid days off, leave benefits, health benefits, transportation, food and lodging arrangements, and any deductions.
• Rest periods: 24 consecutive hours of rest per week and 48 consecutive hours per month required.
• Live-in workers: protected from being on duty for more than 5 days in a row without 24 consecutive hours off.
• Privacy protections: employers may not monitor or record the worker in bathrooms or sleeping quarters.

Domestic-worker employers must still register as MA employers, withhold state income tax, pay SUI (unless under c. 151A §6(o)'s domestic-service exemption — which is narrow), pay EMAC (subject to the 5-employee exemption), and remit PFML if the domestic worker is the only worker the employer's 25-employee threshold is not met but the employer is still the conduit for the employee's 0.46% deduction.

Federal payroll for household employers (Schedule H of Form 1040, "Nanny Tax") is handled in the federal household-employer skill.

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12. MA Health Connector — ACA Employer Mandate

12.1 ACA reporting (federal mandate)

Massachusetts employers with 50 or more full-time equivalent employees (FTEs) are Applicable Large Employers ("ALEs") under IRC §4980H. ALEs must:

• Offer "minimum essential coverage" to at least 95% of full-time employees and their dependents, or face the §4980H(a) penalty.
• Offer coverage that is both "affordable" (employee contribution for self-only coverage ≤ 9.02% of household income for 2025, per Rev. Proc. 2024-26) and "minimum value" (60% actuarial value).
• File Form 1094-C/1095-C annually with the IRS by March 31, 2025 (for 2024 calendar-year coverage) — though MA employers must also file with the Department of Revenue under c. 118H §3 for the residual MA Health Care Reform mandate.

12.2 MA Health Care Reform residual (Form MA 1099-HC)

Massachusetts retains a separate state-level individual mandate under M.G.L. c. 111M (enacted by c. 58 of the Acts of 2006). For 2025, an MA resident filing Form 1 must demonstrate minimum creditable coverage ("MCC") or pay a state penalty. Employers offering MCC-compliant health coverage to MA-resident employees must issue Form MA 1099-HC by January 31 of each year and file a copy with the DOR.

MCC is more generous than federal "minimum essential coverage" — for example, MCC requires a prescription drug benefit, caps deductibles, and caps annual out-of-pocket maxima. A plan that satisfies federal MEC but not MA MCC will not protect the employee from the c. 111M penalty.

For 2025, MCC standards are codified in 956 CMR 5.00. The state-required MCC standards published by the Health Connector Board are reviewed annually; for 2025 the prescription drug benefit and the deductible cap are unchanged from 2024.

12.3 Health Connector for small employers

The Massachusetts Health Connector operates a state-based exchange that includes a small-employer offering (the "Connector Business" program). Small employers (1–50 employees) may purchase group coverage through the Connector and access the federal Small Business Health Care Tax Credit under IRC §45R if they meet the eligibility criteria (≤25 FTE, average wages ≤ $62,000 for 2025, paying ≥50% of premium).

This is a federal credit administered through Form 8941, not a Massachusetts state credit, and is generally out of scope for this MA payroll skill — but the reviewer should flag the credit when the client is in the size band where it applies.

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13. Worked Examples

13.1 Example A — Medium MA employer with 30 employees (PFML 25+ trigger)

Facts: Acme Software Inc., a Boston-based software company, has 30 full-time W-2 employees, all working in Massachusetts. Average wage is $120,000/year. Calendar 2025.

PFML 25-employee test: 30 covered individuals on the 9/30/2024 trailing-four-quarter average. Employer is in the "25+" bracket. Employer share of medical contribution = 0.42% applies.

Per-employee 2025 PFML:

• PFML wage base capped at $176,100; for an employee earning $120,000 the entire $120,000 is subject.
• Employee share: $120,000 × 0.46% = $552.00/year deducted from employee paycheck.
• Employer share: $120,000 × 0.42% = $504.00/year paid by employer.
• Combined per employee: $1,056.00/year.

Total annual PFML for 30 employees at average $120,000:

• Employee deductions total: 30 × $552 = $16,560.
• Employer expense total: 30 × $504 = $15,120.
• Combined remittance to DFML: $31,680/year.

SUI: 30 employees × $15,000 wage base × 1.45% new-employer rate (if Acme is in years 1–3) = $6,525/year. Plus COVID Recovery Assessment at approximately 1.80% × $15,000 × 30 = $8,100. Combined UI burden ≈ $14,625.

EMAC: 30 employees × $15,000 × 0.34% = $1,530/year. (Acme exceeds the 5-employee exemption and is past the 3-year new-employer exemption.)

State withholding: 30 employees × $120,000 × 5% MA PIT ≈ $180,000/year withheld and remitted via Form M-941 (monthly filer based on prior-year withholding). Reconciled annually on Form M-3.

Earned Sick Leave: 11+ employees → paid sick time. Each employee accrues up to 40 hours/year at $120,000 / 2,080 hours = $57.69/hour → up to $2,308 per employee per year if fully used.

Wage Act exposure: any late final paychecks expose Acme to treble damages. Standard offer letter must be reviewed.

Pay Equity Act: 25+ employees → salary range disclosure required on all MA job postings from October 29, 2025 forward.

13.2 Example B — Small MA employer under 25 (no employer PFML)

Facts: Beacon Design LLC, a Cambridge graphic design firm, has 8 W-2 employees, all in Massachusetts. Average wage $80,000. Calendar 2025.

PFML 25-employee test: 8 covered individuals — well under 25. Employer share = 0%. Employee still pays full 0.46% via deduction.

Per-employee PFML:

• Employee deduction: $80,000 × 0.46% = $368.00/year.
• Employer share: $0.
• Combined per employee: $368.00 (employee only).

Total annual PFML for 8 employees:

• Employee deductions: 8 × $368 = $2,944.
• Employer share: $0.
• Total remittance to DFML: $2,944 (entirely employee-funded but Beacon is still the conduit and must file the quarterly PFML return).

SUI: 8 × $15,000 × 1.45% = $1,740/year + Recovery Assessment ≈ $2,160.

EMAC: Beacon has more than 5 employees, so EMAC applies (unless still in 3-year new-employer window). 8 × $15,000 × 0.34% = $408/year.

Earned Sick Leave: Beacon has 10 or fewer employees, so sick time is UNPAID but accrued. At 11 employees, this flips to paid — borderline client, flag for monitoring.

Wage frequency: bi-weekly with written employee consent is acceptable.

Pay Equity Act: under 25 employees — salary range disclosure NOT yet mandatory (the 2024 Act's 25+ threshold). Salary history ban still applies regardless of size.

13.3 Example C — Multi-state employer with MA residents

Facts: Coastal Logistics Inc., headquartered in New Hampshire, has 100 employees total. 12 are MA residents who work primarily from home in Massachusetts, the rest work in NH.

Massachusetts withholding (the MA residency issue):

• MA residents pay MA tax on all income regardless of where earned (M.G.L. c. 62 §3). Coastal must register as a MA withholding employer, obtain a MA withholding account, and withhold 5% on the MA-resident employees' wages.
• For the 12 MA residents, Coastal files Form M-941 (frequency based on withholding volume) and Form M-3 annually.

PFML 25-employee test: Coastal has 12 MA-resident covered individuals (the NH workers don't count for the MA threshold). Coastal is under 25 MA covered individuals → employee-only PFML deduction (0.46%), no employer share.

But: Coastal is over 25 MA employees? The DFML guidance under 458 CMR 2.06 treats the 25-employee threshold as based on MA-located workforce. If all 12 MA residents work from home in MA, they count toward the MA threshold. The 88 NH-based workers do not. Coastal stays under 25 → no employer share.

(If Coastal had, for example, 30 MA-resident telecommuters, it would be over the 25-employee threshold and the employer share would apply on those 30 individuals only.)

SUI: complex multi-state determination under the federal "localization of services" test (UIPL 20-04). Generally a remote-worker MA resident performing services in MA is reported to MA DUA. Coastal must register with DUA and file Form WR-1 for its MA workforce.

EMAC: 12 MA employees > 5, EMAC applies. Past 3-year new-employer window assumed → 12 × $15,000 × 0.34% = $612.

NH considerations (out of scope for this skill but flagged): New Hampshire does not have a state PIT on wages, so no NH withholding issue. The Massachusetts telecommuter rule (TIR 20-15) that taxed remote workers as in-state during COVID was rescinded; for 2025, NH residents working remotely from NH for a MA employer owe NO MA tax, reversing the temporary 2020–2021 rule. MA residents working remotely from MA for a NH employer still owe MA tax — which is the situation here.

13.4 Example D — Wage Act exposure on involuntary termination

Facts: Devon's Bakery Inc., a 6-employee MA bakery, terminates an employee on a Tuesday for cause. The employee's final paycheck (3.5 days of regular wages plus 24 hours of accrued unused vacation) is $1,847.50. Devon's standard payroll runs on Fridays. The bakery owner intends to issue the final paycheck on the next regular Friday (3 days after termination).

Wage Act analysis (§148 and §150):

• Statutory rule: final wages on involuntary termination are due on the day of discharge (Tuesday). The 3-day delay to Friday is a Wage Act violation regardless of employer intent.
• Reuter v. City of Methuen (2022): treble damages on the late-paid $1,847.50 are mandatory, even though the employee was eventually paid.
• Exposure: $1,847.50 × 3 = $5,542.50 in damages, PLUS plaintiff's attorney's fees and costs (typically $5,000–$25,000 in a routine Wage Act case).

Recommendation:

• Cut the final check on Tuesday before the employee leaves the premises. Use the bakery's reserve account if needed; do not wait for the next payroll cycle.
• For accrued unused vacation: must also be paid on Tuesday under Electronic Data Systems.
• Document the termination meeting and final-pay timing in the personnel file.

This example is included because the Wage Act exposure is the single most common source of preventable six-figure liability in our MA small- business book.

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14. Filing Calendar (Quick Reference)

Form	Frequency	Due Date	Filed With
M-941	Quarterly	Apr 30, Jul 31, Oct 31, Jan 31	DOR
M-941	Monthly	15th of following month	DOR
M-941W	Quarter-monthly	Within 3 business days of period end	DOR
M-941A	Annual	January 31	DOR
M-3	Annual	January 31	DOR
WR-1	Quarterly	Apr 30, Jul 31, Oct 31, Jan 31	DUA
PFML Return	Quarterly	Apr 30, Jul 31, Oct 31, Jan 31	DFML
MA 1099-HC	Annual	January 31	DOR
W-2 (state)	Annual	January 31	DOR
EMAC	Quarterly	Apr 30, Jul 31, Oct 31, Jan 31	DUA
EEO-1 (MA)	Annual	February 1	Sec. State

All filings are electronic via MassTaxConnect (DOR), UI Online (DUA), DFML portal (PFML), or DOR business portal (1099-HC).

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15. Provenance and Citation Discipline

Primary authority cited in this skill:

• M.G.L. c. 62 §4(b) — 5% PIT rate.
• Article XLIV, Massachusetts Constitution (ratified Nov 8, 2022) — 4% millionaire surtax.
• TIR 24-13 (DOR) — 2025 indexed surtax threshold ($1,083,150).
• TIR 23-2 (DOR) — surtax withholding mechanics on M-4.
• M.G.L. c. 62B §2 — wage withholding.
• M.G.L. c. 151A — Massachusetts Employment Security Law.
• M.G.L. c. 149 §148 — payment of wages.
• M.G.L. c. 149 §148B — independent contractor ABC test.
• M.G.L. c. 149 §148C — earned sick time.
• M.G.L. c. 149 §150 — Wage Act private right of action and treble damages.
• M.G.L. c. 149 §189 — EMAC.
• M.G.L. c. 149 §189A — EMAC Supplement (sunset 12/31/2019).
• M.G.L. c. 149 §190 — Domestic Workers' Bill of Rights.
• M.G.L. c. 149 §105A — Pay Equity Act (salary history ban).
• M.G.L. c. 149 §29A and §105E — Frances Perkins Workplace Equity Act (c. 141 of the Acts of 2024).
• M.G.L. c. 175M — Paid Family and Medical Leave.
• 458 CMR 2.00 — PFML regulations.
• M.G.L. c. 111M — MA individual health-insurance mandate.
• M.G.L. c. 118H — Health Connector reporting.
• 956 CMR 5.00 — Minimum Creditable Coverage.
• Reuter v. City of Methuen, 489 Mass. 465 (2022) — treble damages on late-paid wages.
• Electronic Data Systems Corp. v. Attorney General, 454 Mass. 63 (2009) — vacation is wages.
• Sebago v. Tutunjian Enterprises, 471 Mass. 321 (2015) — §148B Prong B interpretation.
• Athol Daily News v. Board of Review, 439 Mass. 171 (2003) — §148B Prong B in the UI context.
• DFML 2025 rate notice (October 11, 2024) — 0.88% combined PFML rate.
• DUA rate-schedule notice (November 2024) — Schedule E for 2025.
• SSA News Release (October 10, 2024) — 2025 SS wage base $176,100.
• Rev. Proc. 2024-26 — 2025 ACA affordability threshold 9.02%.

Items pending verification before final sign-off:

• The 2025 COVID-19 Recovery Assessment rate brackets — DUA publishes on a delayed basis; verify against the DUA "Employer Resources" page before quoting client-specific rates.
• The Frances Perkins Act enforcement timeline for first-year warning vs. penalty — the regulations under §29A are still being promulgated as of the last_updated date and may be revised.
• The PFML private-plan exemption bond amount — verify against current DFML private-plan guidance.

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16. Circular 230 Reviewer Sign-Off

This skill is a content reference for use by a credentialed reviewer. Outputs based on this skill must be signed off by an Enrolled Agent, CPA, or attorney admitted in Massachusetts before they are delivered to a client or filed with a Massachusetts agency. The reviewer's responsibilities include:

• Independent verification of every rate, threshold, and deadline against the cited primary source for the engagement's tax year.
• Independent confirmation of the client's 25-employee PFML status, ALE status, and §148B classification of any contractors.
• A separate written engagement letter that defines whether the engagement includes Wage Act remediation advice (note: Wage Act advice may be the unauthorized practice of law if rendered by a non-attorney accountant — coordinate with employment counsel).
• Documentation of the §148B ABC-test analysis for any contractor reclassification recommendation.
• Annual update of this skill on or before December 1 of each year to reflect the published DFML rate, DUA Schedule, surtax threshold, SS wage base, and ACA affordability percentage.

No part of this skill constitutes legal advice. Wage Act compliance, ABC-test analysis, and Pay Equity Act compliance are areas in which the line between tax/payroll advice and legal advice is thin; the reviewer must coordinate with employment counsel on any matter that includes a litigation, settlement, or class-action exposure.

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End of skill.

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