IMPORTANT INFORMATION CONCERNING THE WITHHOLDING OF MASSACHUSETTS INCOME TAXES
Effective January 1, 2006 the Commonwealth of Massachusetts expanded their definition of “wages” to include amounts paid to performers, performing entities and promoters. The Massachusetts tax law definition of performer includes a paid entertainer or speaker, as well as any person paid to further an entertainer or speaker’s performance such as an agent or manager. A performing entity is defined as “a corporation, partnership, limited partnership, limited liability company, corporate trust or other entity that employs, engages, or comprises one or more performers. A promoter is defined as “a person, association, corporation, partnership, limited partnership, limited liability company, corporate trust or other entity that organizes, produces, or sponsors a performance.
Commencing January 1, 2006, as a result of this change in the tax law, payments in excess if $5,000 may not be made to a performer, a performing entity or a promoter unless the required Massachusetts tax has been withheld. Any entity that pays a performer, performing entity or promoter in excess of $5,000 must therefore withhold, from that payment, 5.3% for Massachusetts income taxes representing the tax that will be due to the Commonwealth of Massachusetts on the income earned in the state. The minimum requirement of $5,000 is applied to the full contract price, not the separate installment payments if so required pursuant to the contract.
The taxes withheld are not a “charge” imposed by Massachusetts but rather a prepayment of the Massachusetts income taxes that will ultimately be owed by the performer/promoter on the income earned in Massachusetts. The date that the event takes place is the date upon which the income is earned and becomes taxable to the performer/promoter. Until provided with information to the contrary by the Massachusetts Department of Revenue (DOR), taxes will not be withheld on any deposit paid to a performer/promoter. However, 5.3% of the total contract price, if it exceeds $5,000, will be withheld from the final payment made to the performer/promoter as the final payment, even if it is less than $5,000, is typically paid in the same tax year in which the event takes place and the income becomes taxable to the performer.
The taxes withheld will be remitted to the Commonwealth of Massachusetts on behalf of the performer/promoter and then reflected as state withholdings on the Form 1099 that will be issued to the performer/promoter by the Massachusetts Dental Society at the end of the calendar year in which the “performance” was held. Taxes withheld and remitted to the Commonwealth of Massachusetts on behalf of the performer/promoter shall be considered as payments pursuant to the contract. When filing their Massachusetts tax return for the tax year in which the performance takes place, performers/promoters should include the amount withheld in the total for tax payments made to Massachusetts.
These rules apply to both residents and non-residents. For a non-resident, Massachusetts’s law indicates that since the services are performed in Massachusetts, the income is subject to tax in Massachusetts. Accordingly non-residents will be obligated to apportion this income to Massachusetts which will require them to file a non-resident Massachusetts tax return. The income apportioned to the state can be reduced by any expenses, which can be allocated to Massachusetts. The expense allocation rules should be discussed with a tax advisor. The withheld taxes should be included in the total for tax payments made to Massachusetts on the non-resident tax return.
The withholding requirement is applied to the gross amount paid to the performer/promoter. The net profit earned by an individual or entity acting as an agent or promoter may ultimately be substantially less than the gross amount paid. Entities or individuals in this situation may apply to the DOR for a waiver to reduce the withholding requirements. If a reduced withholding is approved by the DOR payments made by the Massachusetts Dental Society to the approved entity/individual would be subject to the approved reduced withholding percentage or amount The responsibility for withholding Massachusetts taxes from the entertainer would then fall to the entity (agent) actually paying the entertainer.
Any further questions concerning the required withholding of Massachusetts income taxes can be directed to Mr. Dan Elliott in the entertainment unit of the Massachusetts Department of Revenue. He can be reached at 617-887-6594 or by e-mail at elliotd@dor.state.ma.us.