Bill includes $561.3M in tax relief in FY24, $1.02B in FY27 and beyond
In late September, with the goal of providing financial relief to families across the Commonwealth while making Massachusetts more competitive with other states, Representative Joe McGonagle, along with his colleagues in the Massachusetts Legislature, overwhelmingly enacted a bipartisan tax relief package supporting residents across all income levels. On October 4, 2023, Governor Maura Healey signed the bill into law as Chapter 50 of the Acts of 2023.
“I am thrilled we passed this long-awaited tax relief package,” said McGonagle. “House and Senate leadership have proven that we in the Legislature are making it a priority to address affordability concerns in the Commonwealth without sacrificing our standards. We want Massachusetts to continue being the best place to live and work. I’m grateful to Speaker Mariano, Chair Michlewitz and members of the conference committee for their work in getting this done.”
“This tax relief package strikes the critically important balance of providing permanent financial relief to residents and businesses across Massachusetts, without compromising the long-term financial security of the Commonwealth,” stated Speaker of the House Ronald J. Mariano (D-Quincy). “I’m confident that this tax reform legislation will help to make Massachusetts more affordable for all residents, while also helping to make the Commonwealth more competitive with other states. I want to thank Chairman Michlewitz, the members of the conference committee and all the members of the House, as well as Senate President Spilka and our partners in the Senate for working diligently to get this done.”
“This tax relief package will help thousands of residents keep more money in their pockets by providing much needed financial assistance,” said Representative Aaron Michlewitz (D-Boston), who is Chair of the House Committee on Ways & Means. “This package will also help keep the Commonwealth an economically competitive work environment for both businesses and workers. “I want to thank Speaker Mariano for his leadership, my counterparts on the conference committee for their tireless work to make this legislation possible, as well as the entire Legislature for their collaboration on this issue.”
The compromise bill includes the following tax changes:
Child and Dependent Tax Credit: The bill increases the refundable tax credit for a dependent child, disabled adult, or senior from $180 to $310 per dependent in taxable year 2023, and then to $440 in taxable year 2024 and beyond, while eliminating the child/dependent cap. This expanded credit, which will benefit more than 565,000 families, will be the most generous universal child and dependent tax credit in the country.
Estate Tax: Massachusetts’ current estate tax, which has not been updated in many years, has become an outlier in several ways. The changes made in this bill update the tax to bring it more in line with other states and eliminate punitive elements of the tax for those with incomes just high enough to trigger it. The bill reduces the estate tax for all taxpayers and eliminates the tax for all estates under $2 million by allowing a uniform credit of $99,600.
Earned Income Tax Credit (EITC): This bill increases the refundable EITC from 30 percent to 40 percent of the federal credit. This increase will provide crucial support to working individuals and families, benefiting nearly 400,000 taxpayers with incomes under $60,000.
Single Sales Factor Apportionment: Currently, most businesses in Massachusetts are subject to a three-factor apportionment based on location, payroll and receipts. To support companies headquartered in Massachusetts, this bill establishes a single sales factor apportionment in the Commonwealth based solely on receipts, matching what 39 other states currently do.
Senior Circuit Breaker Tax Credit: This bill doubles the refundable senior circuit breaker tax credit, which supports limited-income seniors facing high rents or real estate taxes, from $1,200 to $2,400. This change is expected to impact over 100,000 seniors across Massachusetts.
Rental Deduction Cap: This bill increases the rental deduction cap from $3,000 to $4,000. This is expected to impact about 800,000 Massachusetts taxpayers.
Short-Term Capital Gains Tax: At 12 percent, Massachusetts is among the states with the highest short-term capital gains tax rate, and taxes short-term capital gains at a higher rate than long-term capital gains. The bill lowers the short-term capital gains tax rate to 8.5 percent.
Housing Development Incentive Program (HDIP): The bill increases the statewide cap from $10 million to $57 million for 2023, and subsequently to $30 million annually, which will provide Gateway Cities with an expanded tool to develop market rate housing. This increase is estimated to create 12,500 new homes in Gateway Cities and spur over $4 billion of private investment in these communities.
Low-Income Housing Tax Credit: This bill raises the annual authorization from $40 million to $60 million. This increased authorization cap provides enough funding to spur the creation of thousands of new units of affordable housing annually while also bolstering economic development.
Local Option Property Tax Exemption for Affordable Housing: This new policy will permit municipalities to adopt a local property tax exemption for affordable real estate that is rented by a person whose income is less than a certain level set by the community.
Title V Cesspool or Septic System Tax Credit: This bill will triple the maximum credit from $6,000 to $18,000, and it increases the amount claimable to $4,000 per year, easing the burden on homeowners facing the high cost of septic tank replacement or repair.
Additional Tax Changes:
- Lead Paint Abatement: doubles the credit to $3,000 for full abatement and $1,000 for partial abatement to support families with older homes.
- Dairy Tax Credit: increases the statewide cap from $6 million to $8 million to provide more assistance for 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 commuter expense tax deduction.
- Apprenticeship Tax Credit Reforms: expands the occupations for which this workforce development credit is available.
- Cider Tax: raises the maximum amount of alcohol for these classes of drinks to 8.5 percent, 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.
Additional Reforms: In addition to tax relief, the bill updates Chapter 62F of the Massachusetts General Laws, which triggered nearly $3 billion in taxpayer refunds in 2022. This law requires that excess revenue be returned to taxpayers when tax revenue collections in a given fiscal year exceed an annual tax revenue cap. The bill ensures that each credit is applied equally to every taxpayer.
The bill also adjusts the Stabilization Fund cap, allowing the Commonwealth’s savings account to retain more funding. In addition, the bill requires married taxpayers who file a joint return with the federal government to file a joint state return, subject to exemptions or adjustments promulgated by the Department of Revenue.