Written by: Jonathan C. Hitter, CPA, MST, CGMA
On October 4, 2023, Massachusetts Governor Maura Healey signed into law a historic tax relief package to provide substantial financial relief to the state’s residents. The $1 billion Massachusetts Tax Relief Bill, the first of its kind in more than 20 years, is set to bring significant changes to the state’s tax system.
The tax relief bill is set to provide benefits for many taxpayers beginning with the 2023 tax year. Keep reading to learn more about the key changes in the bill.
1. A Breath of Fresh Air for Investors
The investment realm hasn’t been left untouched. Short-Term Capital Gains Tax, often a concern for traders and short-term investors, has been pruned down from a steep 12% to 8.5%. This cut encourages more dynamic participation in the investment landscape.
2. Alterations in Estate Planning
For those considering their legacies, there’s good news on the horizon. The estate tax exemption in Massachusetts has been raised, moving from a $1 million threshold to an elevated $2 million. That means estates valued at under $2 million won’t be taxed by Massachusetts. This change offers families greater flexibility and security in estate planning.
3. Simplifying Business Taxes
Businesses operating in multiple states often grapple with complex tax calculations. Massachusetts aims to simplify this. The state has transitioned its apportionment calculation from the traditional three-factor system to a straightforward sales-only apportionment, making tax calculations simpler and more predictable. Massachusetts now joins over 30 other states in using the single factor apportionment.
4. Closing Millionaires Tax Loophole for Married Couples
Starting in the 2024 tax year (but not for 2023), married couples must file their Massachusetts tax returns using the same filing status (that is, jointly or separately) as their federal returns. This is intended to eliminate a “millionaires tax” loophole permitting dual-income taxpayers to file separate Massachusetts returns with no federal tax consequence, which would have allowed each spouse to avoid the 4% millionaires surtax on the first $1 million of taxable income.
5. Supporting Families with Children
Starting in 2023, the Child and Dependent Tax Credit will increase from $180 to $310 per child under 13, disabled adults, or seniors. And 2024 promises even more respite, with the credit set at $440 per child.
6. Earned Income Tax Credit Increase
The Earned Income Tax Credit is set for a growth spurt, moving from capturing 30% of the federal credit amount to 40% of the federal credit.
7. A Boost for Renters
With the escalating cost of living, renters can often feel the financial squeeze. The state has escalated the rental deduction cap from $3,000 to $4,000.
8. Senior Citizens in Focus
The senior circuit breaker credit is a refundable credit for senior citizens based on real estate taxes or rent paid on residential property owned or rented as a principal residence, doubling from $1,200 to $2,400.
9. Septic Tank Replacement
This bill will triple the maximum credit from $6,000 to $18,000 and increases the amount claimable to $4,000 per year, easing the burden on homeowners facing the high cost of septic tank replacement or repair.
Ready to Navigate Massachusetts’ New Tax Landscape?
Massachusetts’ latest tax reforms echo the state’s commitment to its residents. The reforms touch every facet of the state’s vibrant community, from parents to senior citizens, from hardworking individuals to businesses.
If you have questions about the tax relief bill and how this impacts you, contact Walter Shuffain.