September 27, 2023
By: William A. Morgan and Suzanne Brown Walsh
On September 26, 2023, Massachusetts leaders announced 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. It is anticipated the legislation will be sent to Governor Healey for signature by October 1, 2023.
Governor Healey signed the $56.2 billion state budget at the beginning of August, which set aside approximately $581 million for tax relief. On Tuesday, legislators estimated a cost of approximately $561.3 million for the new tax plan for the 2024 fiscal year and estimate this cost to rise to $1 billion by 2027 when the changes are fully implemented.
Massachusetts estates will find relief as the legislation allows a uniform credit of $99,600 to remove the tax liability for estates valued under $2 million. Massachusetts currently taxes estates valued at $1 million or more. These changes take effect for decedents dying on or after January 1, 2023.
Those subject to the new Massachusetts millionaire’s 4% surtax will find a planning avenue now closed by the legislation. Presently, married couples that earn more than $1 million who file as “married filing singly” with the Commonwealth can split their income, reducing the 4% surtax or avoiding it outright. The new legislation addresses this by requiring married taxpayers filing joint returns with the IRS to also file jointly with Massachusetts.
The legislation also reduces the short-term capital gains tax rate to 8.5% from 12%.
The legislation will move the corporate income tax apportionment formula for most companies from three factors—property, payroll and sales—to a single sales factor in an effort to make the tax climate to a wider range of industries.
Currently, the single sales factor formula is limited to manufacturing companies, eligible defense contractors and certain financial service providers. Companies other than manufacturers, defense contractors and financial service providers should review their Massachusetts tax particulars to determine if the move to a single factor will benefit them or not.
Among the other changes in the legislation:
- 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 available business tax planning opportunities should these proposals become law in 2023. 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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