The State of Massachusetts have recently approved a 4% tax on annual income above $1 million, on top of the State’s current 5% flat income tax rate. The additional tax has become effective from January 1, 2023. Although this tax will only apply to around 0.6% of Massachusetts households, it is estimated that the levy will bring in roughly 1.3 billion in revenue during 2023. The aim is to use the additional tax to fund public education, roads, bridges, and public transport.
Since the announcement, many high earners in Massachusetts have already put a number of plans in place such as accelerating their income into 2022 if at all possible. This would include accelerating receipt of deferred compensation or selling as asset before the new levy comes into effect. Some have opted to spread their income over a number of years to stay below the $1 million threshold.
Some are even considering moving. As a final option higher earners may choose to leave Massachusetts and opt to live and work in a lower tax State. Although a big step, this may be the only option for some and worthwhile if the levy means a huge tax increase for them.
California State recently rejected a similar proposal of a 1.75% on annual income of more than $2 million, where the funds were earmarked for zero emission vehicle subsidies. California already has a much higher rate of tax of 13.3% for those earning over $1 million. So, has a State trend begun? Experts do not believe there is a broader trend at State level of a millionaire tax rate, as most States have actually reduced their tax rates for 2023. However, this is something to keep an eye on.