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Massachusetts Millionaires Tax FAQs Updated for 2024

March 12, 2024

Attention MA taxpayers…Massachusetts has recently updated the Millionaires Tax frequently asked questions (FAQ)…here’s what it means for high income taxpayers in the bay state.

What is the MA Millionaires Tax?

Check out our blog, “Millionaires Tax” Approved in Massachusetts. Through a constitutional amendment effective January 1, 2023, known as the Fair Share Amendment, the tax rate on MA residents with income over $1,000,000 will now include an additional 4% surcharge. For taxpayers reporting more than $1,000,000 in MA taxable income (indexed for inflation each year) this means ordinary income and long term capital gains will be taxed at 9%, while short term capital gains will be taxed at 12.5%.

2 Recent and Important Clarifications

Under a recent FAQ update, the Massachusetts Department of Revenue makes some key clarifications to Millionaires tax guidance. Here are two of these issues:

  1. The MA Millionaires tax applies to trust and estates—The DOR makes clear that although the MA Millionaire’s tax is widely known as a tax on MA’s wealthiest individuals, it also applies to trusts and estates. MA trusts/estates fall under the individual regime. The FAQ shut down any ambiguity, clearly stating that trusts and estates are included.
  2. You cannot use a 9% rate for the elective Pass-through Entity (PTE) excise tax- December 2017’s Tax Cuts and Jobs Act (TCJA) capped the individual itemized deduction for state and local taxes at $10,000. As a “workaround” to this, MA taxpayers could fund payment at the entity level and thereby capture an above the line deduction on pass through income.

    So why would you want to pay a 9% tax instead of 5? If the individual estate or trust is going to be taxed at the 9% anyway, at least you create an economic benefit via a federal deduction. The FAQ makes it clear that that is not allowed. The PTE excise tax regime has a statutory rate of 5%.

    Note that a reform bill passed in October clarifies that this issue is under ongoing review. The $10,000 SALT cap is one of the provisions of the TCJA that is set to sunset in December of 2025. Unless Congress extends it, relief may be coming without any changes to the PTE excise tax law.
“Massachusetts’ Millionaires tax marks a significant shift in the state's tax landscape. With the Department of Revenue issuing new guidance on its implementation, we now have insights into the mechanics of this tax. This clarity will help taxpayers make decisions with favorable tax outcomes.” Patrick Darcy, CPA

Can you file separately from your spouse to avoid the tax?

One of the items addressed in the Economic Relief Bill is the separate filing workaround, allowing taxpayers to file married filing separate on their state return and potentially shield some of the income from the Millionaires tax. For example, if a taxpayer had $500,000 of income and their spouse had $1 million of income and they filed separate returns, $500,000 of income would escape the Millionaires Tax.

The Economic Relief Bill states that as of January 2024, individuals must use the same filing status in MA that they use on their federal return.

Check out the full list of FAQs and answers here.

Questions on your Millionaires Tax liability? We can help. Contact us.

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