Written by: Deborah Cartisser
On October 4th the Massachusetts Tax Relief Act was signed into law. It was an effort to increase the Commonwealth’s “competitiveness, affordability, and equity”, according to Governor Maura Healey. This is the first tax cut in the state in over 20 years. Note the difference between tax credits and tax deductions. A credit can reduce the amount of tax you owe or increase your tax refund, while a deduction reduces the amount of your income used to calculate the tax you owe. Using the same dollar amount, a tax credit is more valuable than a tax deduction. Below are the tax cuts aimed at renters, families, seniors, and businesses. So, what’s in it for you?
Estate Tax Cut
The estate tax threshold has increased from $1 million to $2 million dollars. This means that if you have less than $2 million dollars in assets, you will not pay Massachusetts estate taxes. The estate tax is graduated, starting at 7.2% and going up to 16%. This tax change is retroactive to those who died on January 1, 2023, or later. There are only 12 states (plus Washington, DC) that impose an estate tax. For estates above $2 million, filers will receive a tax credit of $99,600, which would be the tax paid for an estate of $2 million. If you have assets over $2 million, you should work with your estate planning attorney to see what provisions should be added to your estate documents and talk to your financial advisor about how your assets should be titled, as the estate tax credit is not portable between spouses in Massachusetts. This means a surviving spouse cannot inherit the unused tax credit of the first spouse to die.
Capital Gains Tax
The short-term capital gains tax rate has been reduced from 12% to 8.5%. The tax is assessed on the amount of sale proceeds over and above your cost basis on an asset that was owned for less than one year. Note: If you fall into the Mass Millionaire’s tax category, your short-term capital gains will be assessed the additional 4% surcharge, resulting in a tax rate of 12.5%.
Child and Family Tax Credit
The state’s child and dependent tax credit has increased from $180 per child to $310 for 2023 and $440 for 2024 and beyond. The state estimates that more than 565,000 families will qualify for this credit. This is the most generous child and dependent tax credit in the country. This credit gets phased out gradually with a married filing jointly (MFJ) income of $150,000 and ends with MFJ income of $400,000.
Taxes on Multi-State Businesses
The way Massachusetts calculates taxes owed by multi-state companies is slated to change. Formerly, the apportionment system factored in property, payroll, and sales, and the new bill introduces a simplified version that uses only a company’s sales for the computation. The effective date for this is January 1, 2025. The hope is that the update will encourage more companies to base their headquarters in Massachusetts.
The Massachusetts Millionaire’s Tax
In a previous article, I pointed out the loophole in the new millionaire’s tax. For 2023, a married couple can file singly, essentially allowing each spouse to reach the $1 million threshold before being charged the 4% surcharge. The new law requires married taxpayers who file a joint return with the federal government to file a joint return at the state level as well. This takes effect in 2024.
Senior Circuit Breaker Credit
The maximum senior circuit breaker credit will be raised from $1,200 to $2,400. This is a refundable credit for certain senior citizens based on real estate taxes or rent paid on residential property owned or rented as a principal residence. To find out who is eligible, go to the Mass.gov site here: https://www.mass.gov/info-details/massachusetts-senior-circuit-breaker-tax-credit#who-is-and-isn’t-eligible-
Rental Deduction
The deduction from gross income for 50% or up to $3,000 of the rent paid during the tax year for the taxpayer’s principal residence has been increased to $4,000.
Earned Income Tax Credit
This tax credit is being increased from 30% to 40% of the federal credit. This increase provides crucial support to working individuals and families with incomes under $60,000.
Title V Septic System Tax Credit
The maximum credit is tripled from $6,000 to $18,000 and increases the amount claimable to $4,000 per year, easing the burden on homeowners facing the high cost of septic tank repair or replacement.
Additional Tax Changes
• Lead Paint Abatement: doubles credit to $3,000 for full abatement or $1,000 for partial abatement.
• Dairy Tax Credit: increases the statewide cap from $6M to $8M, providing more assistance to local farmers during downturns in milk prices.
• Student Loan Repayment Exemption: ensures that employer student loan payments are not treated as taxable compensation.
• Commuter Transit Benefits: makes public transit fares, as well as ferry and regional transit passes and bike commuter expenses, eligible for the expense tax deduction.
• Apprenticeship Tax Credit Reforms: expands the occupations for which this workforce development credit is available.
• Cider Tax: raises the max amount of alcohol for these classes of drinks to 8 ½%, allowing more locally produced hard cider and still wines to be taxed at a lower rate.
• Senior Property Tax Volunteer Program: increases from $1,500 to $2,000 the maximum that municipalities may allow for certain seniors to reduce their property tax by participating in the senior work-off program.
Be sure to inform your CPA of tax credits and deductions that you are eligible to participate in, especially if they are new to you. Some of these will be automatically adjusted, such as the child tax credit, and some will not be apparent unless you bring them to your preparer’s attention, such as the lead paint abatement. If you have additional questions, contact your Twelve Points Advisor.
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