In a move that will be significant to many Massachusetts residents and businesses, Massachusetts Governor Maura Healey signed into law on October 4, 2023, a tax package that will provide benefits of up to $1 billion. The bill includes provisions that will impact both income taxes and estate taxes. This post highlights significant individual income tax changes. For a deeper understanding of other aspects of this bill, read our posts on its impact on Estate Taxes and Corporate Taxes.

Individuals who are required to file a return in Massachusetts will be subject to tax cuts involving decreases in certain tax rates, increases in deductions, and increases in tax credits that will reduce their income tax liability.

The reductions in certain tax rates include a 3.5% reduction in the tax rate on short-term capital gains, reducing the current rate from 12% to 8.5%. This reduction will go into effect for tax years starting on or after January 1, 2023. However, if a taxpayer is subject to the new Massachusetts “millionaires tax”, the 4% surtax will increase the short-term capital gain rate up to 12.5%.

Also, starting in 2024, married couples must file their Massachusetts tax returns using the same filing status (joint or separate) as their federal returns. This is to eliminate a loophole for taxpayers to separate their Massachusetts return without impacting their federal filings and potentially avoid the 4% millionaire surtax.

Further provisions of the new tax bill will increase various allowable deductions and tax credits for individuals. Most notably, the residents in Massachusetts who pay rent for their primary residence will witness an increase in the cap of the rental deduction from $3,000 to $4,000 starting in 2023. The government estimates that this increase will support around 800,000 renters in the state. Among the increases in tax credits for Massachusetts residents include enhanced benefits to the Earned Income tax credit and the Child and Dependent tax credit. Massachusetts individuals who receive an Earned Income tax credit on their federal return will now be allowed to take 40% of the federal credit as opposed to the previously allowed 30%. The Child and Dependent tax credit for Massachusetts residents will also be increased per dependent from $180 to $310 in 2023 and $440 in taxable years after that.

DiSanto, Priest & Co. can help you navigate the tax opportunities created by the Massachusetts Tax Bill of 2023. Call us at (401) 921-2000 or submit our contact form to get started.