Massachusetts voters have approved a measure during the midterm election to establish an additional 4% surtax on taxable income exceeding $1 million for state taxpayers. The measure, commonly known as the “Fair Share Amendment” or the “Millionaires Tax”, will add 4% to the State’s 5% flat tax rate to taxable income over $1 million starting in 2023. The $1,000,000 income level will be adjusted annually to reflect any increases in the cost of living by the same method as the federal brackets. The new change is a first for the state, as Massachusetts is known for having flat tax rates across the board. The change will amend the Massachusetts State Constitution to include the progressive tax-rate.
While this new amendment will apply to around 0.6% of Massachusetts households, it is estimated that it will raise around $1.3-$1.5 billion in additional tax revenue for the 2023 fiscal year. The new tax revenue has been earmarked for education and transportation maintenance as outlined in the amendment, but still can be altered by the legislature if other projects are deemed more important at the time.
The majority of taxpayers that will be affected by this tax increase are small business owners, large employers and retirees. The new law can also affect so-called “one-time millionaires”, which includes residents who sell their houses or businesses for a gain that , when coupled with their other sources of income, result in over $1 million in taxable income in any given year. Opponents to the new tax hike have raised the concern that this will drive out more high-income earners from that state and result in less revenue for Massachusetts.
If you have any questions regarding how this new tax change will affect your Massachusetts State Income Taxes, please call us at 401-921-2000, or reach us through email or complete our online contact form.