What the ‘millionaire tax’ in Massachusetts means for the wealthy

If you make more than $1 million a year in Massachusetts, you could soon be eligible for a “millionaire tax” approved by voters this week through the ballot system.

The new law creates a 4% tax on annual income over $1 million, on top of the state’s current 5% tax, which is intended to fund public utilities, roads, bridges and public transportation.

The tax is expected to affect about 0.6% of Massachusetts households, according to an analysis from the Center for State Policy Analysis at Tufts University.

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“Democrats have been working for a long time to increase taxes and progress in this system,” said Richard Auxier, policy fellow at the Urban-Brookings Tax Policy Center, pointing to the recent 5% tax in Massachusetts regardless. benefits.

However, California voters rejected a similar tax, in order to pay for zero-emission vehicle programs and wildfire response and prevention. The measure would have added a 1.75% tax on annual earnings over $2 million, plus a top tax rate of 13.3%.

“It’s state-specific,” Auxier said, explaining how tax voting methods can affect funding requirements, the current tax structure and more.

Tax preparers to be ‘very busy’ with Bay State clients

Although the measure was only approved earlier this week, many wealthy people were already discussing the impact of advisors.

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“This has been on people’s minds,” said Jim Guarino, a financial planner, CPA and managing director at Baker Newman Noyes in Woburn, Massachusetts. He said the client’s negotiations started as soon as it was announced.

Those notified will now work closely with their advisers and look for ways to reduce or avoid surtax.

Jim Guarino

Managing director at Baker Newman Noyes

The new tax is expected to bring in about $1.3 billion in fiscal 2023, according to a Tufts analysis. But Guarino expects lower numbers because of tax planning and, in some cases, “leakage” from high-income earners leaving the state.

“Notified parties will now work closely with their advisers and look for ways to reduce or avoid surtax,” he said.

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For example, someone might consider growing their income over many years, rather than having a “big hit” that gets them past a million dollars in 2023, Guarino said.

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In some cases, they may try to receive additional funding for next year in 2022, before the law takes effect, he said. “If you can reduce your income, it’s usually a good thing,” Guarino said. “But in the meantime, a cash advance would give you 4% [tax savings] at the government level.

“I think we’re going to be busy the next six to seven weeks with our Massachusetts customers,” he added.

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