New tax law changes have been signed into law by Massachusetts Governor Healy on October 4, 2023. This represents the most significant tax reductions in more than 20 years.
Some of the tax law changes that have been enacted include:
Individuals
Married taxpayers who file jointly for federal purposes will now have to file jointly for Massachusetts, effective for tax years beginning on or after January 1, 2024. Prior to this enactment, married individuals could have filed separately for Massachusetts if they filed jointly for federal purposes. This new change was enacted in response to the Massachusetts millionaires’ tax of 4% which applies to taxable income above $1 million. By filing separately, the 4% additional tax can be reduced as each spouse’s income would be subject to the $1 Million threshold. However, filing jointly for federal purposes may be to the married couple’s advantage at the federal level.
The rate on short-term capital gains has been reduced from 12% to 8.5%, effective for tax years beginning on or after January 1, 2023. Please note there is no change to the 5% tax rate on ordinary income and long-term capital gains, nor to the additional 4% tax rate on taxable income over $1 million.
Other changes include an increase to the rental deduction cap from $3,000 to $4,000. There will also be increases to the Child and Family Tax Credit, Senior Circuit Breaker Credit, Earned Income Tax Credit and Title V (Septic) Tank credit.
Estate tax
There is now a $2 million exemption, where estates will only be subject to estate tax if the taxable estate exceeds $2 million. The prior law had estates subject to the estate tax if the taxable estate exceeded $1 million. In addition, the $2 million is now an exemption with only the portion of the estate above $2 million being taxable, whereas the previous $1 million was merely a filing threshold. The new law is effective for decedents whose date of death is after January 1, 2023.
Businesses
The apportionment rules will change for companies subject to tax in Massachusetts and doing business in multiple states. Massachusetts will now use a single sales factor formula based on sales revenue in MA which will replace the three-factor apportionment method that previously also used payroll and property located in Massachusetts as apportionment factors.
Please contact your Grassi representative for more information.
