October 4, 2023
By: William A. Morgan and Suzanne Brown Walsh
Today, October 4, 2023, Governor Healey signed into law major tax legislation that includes estate tax relief, closing a loophole around the newly implemented millionaire’s tax, short-term capital gains tax cuts and more. Here is a brief summary.
1. Estate Tax Relief
For decedents dying on or after January 1, 2023, the threshold for Massachusetts Estate Tax rises to $2 million. Massachusetts taxed entire estates valued at $1 million or more before this new legislation. The tax on the entire estate was known as a "cliff tax" since the entire estate was taxed if the estate exceeded $1 million. The new legislation eliminates the "cliff tax" by allowing a uniform credit of $99,600 to remove the tax liability for estates valued under $2 million.
2. Closing the “Millionaires Tax” Loophole
The "Millionaires Tax" imposes a 4% surtax on income exceeding $ 1million. The new law requires married taxpayers filing joint returns with the IRS to also file jointly with Massachusetts. This will prevent married couples who earn over $1 million from filing as "married filing singly" with the Commonwealth to reduce the 4% surtax or avoid it outright.
3. Decrease the Short-Term Capital Gains Tax
The legislation also reduces the short-term capital gains tax rate to 8.5% from 12%. This rate will apply to the sale of capital assets held for one year or less. The long-term capital gains rate remains unchanged at 5%, the same rate as ordinary income in Massachusetts.
Among the other changes in the legislation:
- Massachusetts moves to a single sales factor from a three-factor type of apportionment. This will result in Massachusetts taxing the net income of businesses by multiplying the companies’ overall net income by the ratio of Massachusetts sales to overall sales.
- Raising the tax credit for a dependent child, disabled adult or senior from $180 to $310 for tax year 2023, and to $440 for tax year 2024 and beyond, per dependent.
- The earned income tax credit would rise from 30% to 40% of the federal credit.
- The rental deduction cap rises to $4,000 from $3,000.
- The changes require payments sent out under the 1986 law known as Chapter 62F to be paid out equally among taxpayers. Chapter 62F requires Massachusetts to return money to taxpayers when the total tax revenue exceeds an annual amount tied to wage and salary growth. In 2022, the Commonwealth paid out approximately $3 billion. In 2023, the Commonwealth did not meet the threshold requiring refunds.
We encourage you to connect with your counsel to have your current planning reviewed regarding estate planning and business tax planning opportunities available now that these changes have become law. Such a review can also ensure that your estate plan continues to reflect your intentions and is up to date with your current circumstances.
If you have any questions, please contact Bill Morgan, Trusts & Estates Counsel, at 617.457.4061 or wmorgan@murthalaw.com or Suzanne Brown Walsh, Partner, Trusts & Estates Chair, at 860.240.6041 or swalsh@murthalaw.com.
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