Lawmakers compromised on a widespread Massachusetts tax relief package, which includes tax breaks for residents of all income levels. What some call the largest tax relief package in history would cost the Commonwealth $1 billion when the legislation is fully phased in.
The Massachusetts House voted overwhelmingly in favor of the bill, and the Massachusetts Senate approved the package last week. Massachusetts Gov. Maura Healey says the tax relief would make Massachusetts “more affordable.”
Healey signed the sweeping bill into law on Wednesday, Oct. 4.
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Massachusetts tax relief bill
The Massachusetts tax cut bill will benefit nearly all taxpayers in the Commonwealth to some degree, with significant tax relief for earners with low and middle incomes. Wealthier taxpayers may also see savings under the proposed estate tax cut.
The package is projected to cost Massachusetts $561 million this year and $1 billion by fiscal year 2027.
Massachusetts child tax credit for 2023
The bill includes a Massachusetts expanded child tax credit, which eliminates the maximum number of eligible dependents that can be claimed. (Previously in Massachusetts, taxpayers could only claim two dependents, regardless of the number of children in the household.) The legislation also increases the amount of the credit, which will more than double by the 2024 tax year.
- The amount of the Massachusetts child and dependent tax credit will increase from $180 to $310 per dependent for the 2023 tax year.
- For the 2024 tax year, the amount of the credit will jump to $440 per eligible dependent.
What does this mean? With no cap on the number of eligible dependents and the increase in the credit amount, a family with four qualifying dependents could see the tax credit increase by $1,400 in 2024.
Renter and homeowner credit increase
Massachusetts homeowners age 65 and older will see their circuit breaker tax credit double, from $1,200 to up to $2,400. (That means eligible residents could save an additional $1,200 per year.) However, income limits still apply.
Note: Based on limits applicable to the 2022 tax year, individuals could make $64,000 ($96,000 for married homeowners) and still qualify for the credit. Income thresholds can change annually.
Eligible renters in Massachusetts also get a tax break. Previously, eligible renters could deduct up to $3,000 of rent paid during the year. Under the new legislation, this amount increases to $4,000. Eligible renters can deduct $4,000 if they pay at least $8,000 a year for rent. The allowable deduction amount is less for residents who have lower rental costs.
- The allowable rental deduction is $3,500 for renters paying $7,000 per year.
- Renters paying $6,000 or less per year won't benefit from the deduction increase in the package. Their maximum allowable deduction will remain the same as for the 2022 tax year.
Massachusetts estate tax credit
Higher earners in Massachusetts may benefit from the estate tax exclusion. Under the tax relief bill, the estate tax exemption increases from $1 million to $2 million. That means estates valued at under $2 million won't be taxed by Massachusetts.
Given the newly imposed Massachusetts millionaire tax previously reported on by Kiplinger, the new estate tax cut could be welcomed by wealthier residents.
Massachusetts capital gains tax relief?
A proposed short-term capital gains tax cut could also provide a benefit for Massachusetts’ higher earners. The Massachusetts capital gains tax, previously 12% is reduced, under the bill, to 8.5%. However, tax savings for wealthy residents could be reduced under another provision in the package.
Under existing state law, Massachusetts refunds taxpayers if more than a specified amount of tax revenue is collected during a fiscal year. The amount refunded is based on the amount of taxes paid. Massachusetts is still required to refund excess tax revenue, but under the new bill, that excess amount will be evenly distributed among taxpayers. So, higher earners who pay more in taxes will no longer receive higher tax rebates than taxpayers who pay less.
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