by Kathleen M. Sablone, JD, AEP®, Co-Chief Planning Officer
Massachusetts Question 1, sometimes referred to as the “Millionaires’ Tax” or the “Fair Share Amendment,” has been approved by voters. As a result, a 4% surtax will be imposed on any income over $1 million beginning in 2023. The additional tax will only apply to the portion of income over $1 million, and this threshold will be increased annually for inflation. There is no exception for one-time income, such as the sale of a home or business.
To further illustrate, let’s look at an example of an individual taxpayer with a recent home sale of $1 million and a salary of $500,000:
In this example, the cost basis of the home was $200,000, and the individual has applied the personal residence exception of $250,000, so the gain on this sale is $550,000. When the individual’s salary of $500,000 is added, their total income would be $1,050,000, which means that the extra 4% would only be imposed on $50,000 in income.
One interesting note is that the $1 million applies to household income. So, if a married couple who files jointly each make $500,000 in salary and have $200,000 in dividends and capital gains, then their income is $1,200,000 and they will be taxed an extra 4% on $200,000. In this case, the couple might want to file separate returns to avoid the surtax.
Massachusetts residents who may fall into this category should review whether they can accelerate any income into 2022 to avoid the additional tax. Beginning in 2023, married couples should evaluate whether they should file separate returns. For those selling a business, they might want to structure payments over several years if it will keep them below the threshold.
If you have any questions, please contact a member of our Estate and Financial Planning Group:
Kathy Sablone – [email protected] or 617-956-9712
Alisa Kim O’Neil – [email protected] or 617-275-0313
Important: This alert does not contain any legal or tax advice. You should always consult with your attorney, accountant or other professional advisors before changing or implementing any tax, investment or estate planning strategy.
IRS Circular 230 Disclosure: Pursuant to IRS Regulations, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
Professional Designation Minimum Requirements Disclosure:
AEP® – Accredited Estate Planner®. Minimum requirements for the AEP® designation include active practice for a minimum of five years within the following disciplines: accounting; insurance and financial planning; law; philanthropy; and trust services with at least one-third of the individual’s time devoted to estate planning. Additionally, one or more of the following professional credentials: JD, CPA, CLU®, CFP®, CPWA®, CFA, CAP®, CSPG, CTFA, MSFS and MST is required, along with three professional references and current membership in an affiliated local estate planning council.