For many families in Northern New England, living in New Hampshire while working in Massachusetts feels like the best of both worlds: no income tax at home and strong employment opportunities across the border. But when tax season arrives, the rules can feel confusing—and mistakes are common.
The key question is simple:
Which income is taxable in Massachusetts? Which is not?
The answer, however, is more nuanced than most people expect.
CORE PRINCIPLE: Massachusetts Taxes Where the Work Happens
If you live in NH but work in MA, you are considered a nonresident of MA for tax purposes. MA generally taxes only income that is sourced to MA.
In practice, this means:
-
Wages earned for work physically performed in MA are taxable in MA.
-
Investment income (interest, dividends, capital gains) is not taxable in MA if you are a NH resident.
-
Your spouse’s income is not taxable in MA unless they also work there.
-
For a NH resident, compensation attributable to services physically performed while working remotely from NH is generally not MA-source income and therefore is generally not taxable by MA. The distinction is critical—and frequently misunderstood. A common error we see is that taxpayers (or even software programs) include all household income on the MA return. Doing so can result in paying taxes that are not legally owed.
THE ALLOCATION ISSUE: Where Did You Actually Work?
The rise of remote and hybrid work has made state tax allocation more important—and more complicated.
If you split your working time between MA and NH, only the portion of your wages attributable to MA workdays should be taxed by MA.
For example:
- 200 total workdays in the year
- 120 days worked in MA
- 80 days worked in NH
In this case, only 60% of your wages should be subject to MA tax. For example:
From a planning perspective, this is one of the most overlooked opportunities to reduce state taxes legally and accurately.
The challenge is that, in practice, many employers do not automatically track or report this breakdown on the Form W-2 and instead report all wages as MA wages. Thus, a taxpayer may need to substantiate a MA/non-MA workday allocation when filing their MA nonresident return.
**This example is hypothetical and does not represent the performance of any specific employment scenario. Individual situations can vary.
DEDUCTIONS & EXEMPTIONS: Not Just for Massachusetts Residents
Another misconception is that MA deductions apply only to residents. In reality, nonresidents may still benefit from:
- Personal exemptions
- Dependent exemptions
- HSA contributions
- Retirement contributions (e.g., Social Security or MA pension systems)
However, these deductions are typically prorated based on the portion of income taxable in MA.
The practical implication: Even if you are a NH resident, proper reporting and allocation can materially reduce your MA tax liability.
NEW HAMPSHIRE’S EXPANDED TAX ADVANTAGE
Historically, NH taxed interest and dividend income at 5%. That tax has now been fully eliminated starting in the 2025 tax year. As a result, NH residents now benefit from:
- No earned income tax
- No interest or dividend tax
- No broad-based capital gains tax
As a result, NH residents are generally not subject to state tax on wages, interest, dividends, or capital gains, creating a significantly different state tax profile than MA, which imposes:
- A 5% flat income tax, plus
- An additional 4% surtax on income above $1 million
For households with significant investment income, equity compensation, or liquidity events, the difference can be substantial.
THE BIGGER QUESTION: Does Living in New Hampshire Actually Save Money?
While the tax math often favors NH, the decision is not purely financial. Key trade-offs include:
1) Property Taxes: NH’s property taxes are among the highest in the country and can offset some or all income tax savings.
2) Commuting Costs: Longer commutes introduce direct and indirect costs:
- Transportation expenses
- Vehicle depreciation
- Lost time
- Childcare and household outsourcing
- Reduced flexibility and quality of life
3) Federal Tax Limitations: SALT deduction caps (state and local tax – yes, they still exist for higher income households) means that paying high MA taxes provides limited federal tax benefit. For many households earning over $600,000, state taxes above $10,000 are effectively nondeductible. Other incomes experience a phase-out of the $40,000 current SALT cap starting at $500,000 of AGI.
THE STRATEGIC INSIGHT: Taxes Are Only One Variable
The real planning opportunity is not just minimizing taxes—it’s optimizing the full financial picture.
For example:
- If both spouses work in MA, the tax benefit of living in NH may be modest.
- If one spouse works in NH or remotely, the tax advantage may increase significantly.
- If a household has high investment income, NH residency may be more valuable.
- If commuting costs and lifestyle trade-offs are high, the “tax savings” may be overstated.
In other words, the right answer depends less on state tax rates and more on how your income is structured and where your time is spent.
**These examples are hypothetical and do not represent the performance of any specific scenario. Individual situations can vary.
Why This Matters More Than People Realize
State tax mistakes often go unnoticed because:
- Tax software defaults to conservative assumptions.
- Employers don’t always allocate income correctly.
- Taxpayers assume that cross-border rules are simpler than they actually are.
Over time, these errors can lead to thousands of dollars in unnecessary taxes. For families who live in NH and work in MA, understanding these rules is not just about compliance—it’s about making informed decisions that align taxes, lifestyle, and long-term financial goals.
* M.G.L. c. 62; 830 CMR 62.5A.1; Massachusetts Nonresident or Part-Year Resident Income Form 1-NR/PY; RSA Chapter 77 (Interest and Dividends Tax), repealed effective January 1, 2025; 2023 N.H. Laws Chapter 79; IRC § 164(b)(6).
** Perennial Edge and its representatives do not provide tax advice. Please consult with your tax advisor regarding your individual situation. The information provided in this newsletter is for informational purposes only.
