Highlights of New Tax Reform Package

After close to two years of discussion and a lengthy negotiation process in the current session, H4104, the State’s first significant tax relief in well over a decade, was signed by Governor Maura Healey into law earlier this week. In its first year, the tax package will provide about $561 million in relief for the current fiscal year. Several other provisions will be phased in over time providing more than $1 billion in relief by fiscal year 2027 according to reports. The legislation contains a number of provisions aimed at providing relief to individuals as well as businesses including:

Child Tax Credits: The new law features an overhauled child and dependent tax credit. This will provide parents and caregivers with $310 per dependent this year and $440 per dependent next year and beyond. Additionally, the current credit’s limit of two qualifying dependents has been eliminated.

Earned Income Tax Credit (EITC): The law increases the EITC for low-income residents to 40% of the federal EITC, up from the previous 30% Senior Circuit Breaker: The maximum credit that lower-income residents aged 65 and older can claim is being doubled from $1,200 to $2,400.Rental Deductions: While Massachusetts allows renters to write off up to 50% of their rent from their taxes, the maximum deduction is being raised to $4,000, up from $3,000.

Short-Term Capital Gains: The new law slashes the short-term capital gains from 12% to 8.5%.

Single Sales Factor: Under the new law, the state is abandoning the three-factor test for determining sales tax for corporations which previously took into account (I) property (2) payroll and (3) sales. The transition to a single sales factor apportionment formula will begin on January 1, 2025.

The Estate Tax: The new law raises the Estate Tax floor from $1 million to $2 million, exempting all estates below $2 million from the tax. A $99,600 credit that can be used to reduce the overall tax burden will now be issued to all estates.

Joint Filing: All married couples who file taxes jointly at the federal level will now be required to file jointly at the state level. Previously couples could elect to file separately at the state level regardless of how they filed at the federal level. This move is aimed at preventing high-earning couples from avoiding the new surtax on $1 million by filing separate tax returns.

Housing Development Incentive Program (HDIP): In an effort to spur much needed housing development across the Commonwealth, the legislation makes significant new investments in the state’s HDIP program, providing Gateway cities with a tool to develop market rate housing and providing tax credits to developers building housing projects. The new law allocates $57 million to clear the backlog on eligible projects awaiting the credit and raises the cap on HDIP spending to $30 million per year.