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Tax Update: Massachusetts Millionaires' Tax

November 16, 2022

Massachusetts voters recently passed the so-called “Fair Share Amendment” (also known as the “Millionaires’ Tax”) to amend the state constitution. This new rule imposes a 4% additional tax on taxable incomes over $1 million (as indexed for inflation). It is important to note that capital gains and irregular income, such as the sale of a home or business, count as income for purposes of determining the tax.

The tax will apply to all taxable income received by residents of Massachusetts, or on any income generated in Massachusetts by those who live outside the Commonwealth.

High income earners, or those who expect to temporarily have high incomes, may be able to reduce their tax liability with careful planning.

Planning Opportunities
  • Trusts. It may be possible to change the residence of a Massachusetts trust to a state with lower or no income tax, like New Hampshire or Florida. Converting grantor trusts to nongrantor trusts, particularly when situated outside of Massachusetts, or using Incomplete grantor trusts (“INGs”) can also be advantageous.
  • Accelerating Income. The new tax is imposed on taxable incomes received on or after January 1, 2023; closing sales in 2022 will avoid the tax.
  • Change Residency. If income is generated from sources outside of Massachusetts, moving to a state with low income tax environments could result in significant savings.
  • File Separately. The $1 million threshold is not increased for married couples filing jointly, but each member of a married couple filing separately has his or her own $1 million threshold.
  • Defer Income. It may be possible to structure certain sales such that the income is spread out over several years, possibly avoiding imposition of the tax.

Tarlow Breed Hart & Rodgers, P.C. has attorneys available to help develop strategies to minimize the impact of the Millionaires’ Tax. If you have any questions, please contact our Estate Planning Department at (617) 218-2000.