During this week’s midterm election, Massachusetts voters approved Question 1 – an amendment to the state’s constitution that will increase taxes for the commonwealth’s wealthiest residents.
The Fair Share Amendment, also known as the Millionaire’s Tax, will impose an additional 4% surtax for those earning more than $1 million per year. Previously, Massachusetts has had a flat 5% tax rate for all income levels. The majority of U.S. states — and the federal government — have graduated income taxes that apply higher rates to higher earnings. By contrast, Massachusetts has a flat-rate income tax; previous efforts to introduce multiple tax rates in the state have been rejected by voters.
The tax increase will take effect on January 1, 2023, and will apply to any portion of income earned above one million. For example, a taxpayer earning $2 million next year will pay the state’s 5% tax rate on the first million, and the new surtax rate of 9% on the second million. The new surtax would also apply to “one-time millionaires”, or taxpayers who earn more than $1 million from a transaction, like the sale of a home or business. Each year, the threshold for this surtax will increase with inflation, so that over time households would need to earn well over $1 million to be subject to the tax.
The revenue generated by the new surtax is expected to be $1-2 billion in 2023 and is planned to be allocated to education and transportation costs in the state.
If you have questions about how the new millionaire’s tax will impact your tax liability, leave a comment below, or feel free to contact me directly. I’m happy to help!