This past November, Massachusetts voters approved the “Massachusetts Millionaires Tax”. This amendment to the Massachusetts Constitution implements a 4% surtax on MA income in excess of one million dollars. The new tax law is effective beginning with the 2023 tax year.
This amendment includes the following language “there shall be an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes.” As written, the surtax will apply to any tax return and the $1M floor would apply to all filers, including married filing separate (MFS) tax returns. Thus, there seems to be a “loophole” to this new surtax for married taxpayers where both spouses are high income earners. Each spouse would be allowed to file married filing separate on their MA tax return, report their separate income and each would have a $1M floor on their respective MFS tax return being filed. Beginning with the 2023 tax year, MA taxpayers filing a joint tax return would be allowed a $1M floor, but for high earners if filing MFS the combined floor could be as high as $2M. As the new tax rule is written, it does not state that married filing joint filers are allowed a $1M floor, and married filing separate filers are only allowed a $500,000 floor per tax return filed. The $1M floor pertains to any tax return. One other caveat that MA high income married taxpayers should be aware of – MA allows married taxpayers to file a joint federal tax return and choose to file their MA income tax returns as MFS.
As this new tax law will not take place until the 2023 tax year, perhaps MA may come out with clarification on the apparent married filing separate tax benefit. It seems that MA may not have thought out the new rule completely. There may be more to come on this item in 2023, assuming the true intent of this amendment is a $1M income floor per household, not a $1M income floor per separately filed tax return.