Massachusetts Passes Significant Tax Reforms

AAFCPAs and AAF Wealth Management would like to make clients aware that Governor Maura Healey recently signed into law significant tax legislation. The package will modify a number of tax laws in the Commonwealth including those related to short-term capital gains, the estate tax exemption, and the joint filing requirement. While legislation was signed into law on October 4, 2023, it is being phased in to take full effect in fiscal year 2027.

Highlights of the MA Tax Reforms include:

• An increased estate tax exemption from $1,000,000 to $2,000,000.
• A decreased tax rate on short-term capital gains, i.e., gains on the sale of capital assets held for a period of one year or less, from 12 percent to 8.5 percent.
• An increased tax credit for children and disabled adults or seniors from $180 to $310 in 2023 and to $440 in 2024.
• An increase in the rental deduction from $3,000 to $4,000.
• An increase in the earned income tax credit from 30 to 40 percent of the federal credit for Massachusetts purposes.

Also included is a mandate that married couples filing joint federally must do the same for Massachusetts purposes. This new rule eliminates a tax planning strategy wherein married couples could file separately in Massachusetts to minimize the impact of the new millionaire’s tax. Note that this provision will not take effect until 2024, so couples may still file separate 2023 returns.

Additionally, effective for tax years starting on or after January 1, 2025, corporations operating in multiple states will determine their tax liability using a single sales factor formula, which calculates the percentage of Massachusetts sales to total sales. Current law requires most corporations to use a three-factor system which looks at the Massachusetts percentage of sales, payroll, and property.

If you have questions, please contact Joshua England, LLM, Esq., Partner & Tax Attorney at 774.512.4109 or jengland@aafcpa.com—or your AAFCPAs Partner.