Bill includes $654Mn in tax relief in FY24, $1.1B in FY26 and beyond
On April 13, 2023, in an effort to provide financial relief to families across the Commonwealth and to make Massachusetts more competitive with other states, the Massachusetts House of Representatives passed a tax relief proposal targeted at residents across all income levels. The Massachusetts House of Representatives approved the bill, 150-3, and it now goes to the Senate.
“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,” said 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 and Chairman Cusack for their work crafting this package, as well as all the Members of the House for their input.”
“This tax relief package will help thousands of residents keep more money in their pockets by providing much needed financial assistance. This package will also help keep the Commonwealth an economically competitive work environment for both businesses and workers,” said Representative Aaron Michlewitz (D-Boston), who is Chair of the House Committee on Ways & Means. “I want to thank Speaker Mariano for his leadership, as well as Chair Cusack and the entire membership of the House for their collaboration on this issue.”
“This tax relief package speaks of the House of Representative’s commitment to making Massachusetts a better place to live, work and invest,” said Representative Jessica Giannino (D-Revere). “I want to thank Speaker Mariano, Chair Michlewitz and Chair Cusack for their leadership in putting this transformative legislation together. Massachusetts is one step closer to being more affordable for all our residents and more competitive for businesses and workers.”
“As inflation and the high cost of living continues to harm the working-class residents of Winthrop and Revere, this tax cut package is a good first step to address affordability and fairness in our tax policy. I want to thank Governor Healey for making tax reform a priority of her administration,” said Representative Jeffrey Rosario Turco (D-Revere).
The bill includes the following tax changes, some with a phased-in implementation method:
Child and Dependent Tax Credit: The bill combines the Child Care Expenses Credit with the Dependent Member of Household Credit to create one refundable $600 credit per dependent while eliminating the current cap. This will be phased in over three years and will be fully implemented in FY27: Taxpayers could claim $310 per dependent in FY24, $455 per dependent in FY25, $600 per dependent in FY26 and $614 per dependent in FY27. This change will cost $165 million in the first year of implementation and $487 million when fully implemented in year three. It is expected to impact over 700,000 Massachusetts families.
Estate Tax: Massachusetts is currently a national outlier on the estate tax, as the Commonwealth is one of only 12 states that impose this tax and has the lowest estate tax exemption threshold in the country, along with Oregon. The bill increases the estate tax threshold from $1 million to $2 million, and eliminates the “cliff” effect, taxing the value of the estate that exceeds $2 million, and not the entire estate, as the law currently requires. This is expected to cost $231 million per year.
Senior Circuit Breaker Tax Credit: This bill doubles the Senior Circuit Breaker Tax Credit from $1,200 to $2,400. This change is expected to impact over 100,000 taxpayers who own or rent residential property in Massachusetts as their principal residence. This will cost $60 million per year.
Rental Deduction Cap: This bill increases the rental deduction cap from $3,000 to $4,000. This is expected to impact about 881,000 Massachusetts taxpayers and cost $40 million per year.
Short-term Capital Gains Tax: Massachusetts is among the states with the highest short-term capital gains tax rate, which is currently 12 percent, and taxes short-term capital gains at a higher rate than long-term capital gains, which are currently taxed at 5 percent. The bill lowers the short-term capital gains tax rate to 5 percent and phases in that change over two years. During year one, short-term capital gains will be taxed at 8 percent, before ultimately reaching 5 percent during year two. This will cost $67 million in year one and ultimately cost $130 million annually, starting in year three of its implementation.
Single Sales Factor Apportionment: Currently, most businesses in Massachusetts are subject to a three-factor apportionment based on location, payroll and receipts. To make Massachusetts more attractive to multi-state companies, this bill establishes a single sales factor apportionment in Massachusetts based solely on receipts, matching what 39 other states currently do. This change is projected to cost $115 million in year one and ultimately cost $79 million annually, starting in year two of its implementation.
Earned Income Tax Credit (EITC): This bill increases the EITC from 30 percent to 40 percent of the federal credit. This is expected to impact about 396,000 taxpayers with incomes under $57,000 and cost $91 million.
Additional Reforms: The bill also adjusts the Stabilization Fund cap, which currently requires that if the amount remaining in the fund at the end of a fiscal year exceeds 15 percent of the budgeted revenues and other financial resources pertaining to budgeted funds, the excess funds must be transferred to the Tax Reduction Fund, which would then be transferred to taxpayers through one-time increases in the personal exemption allowable against income tax liability. The bill adjusts the cap to 25.5 percent, which allows the Commonwealth’s savings account to retain more funding.