A taxpayer may wish to recalculate his or her prior year capital gains and losses under the new law in order to maximize any carryover losses. Under the new capital gains tax law, all net long-term gains eventually net against all net long-term losses, regardless of their respective holding periods. States that collect a personal income tax allow individuals to claim personal exemptions on income taxes each year. The personal exemption indicates that only a person's income above a certain level is subject to taxation. The Combined Rate accounts for Federal, State, and Local tax rate on capital gains income, the 3.8 percent Surtax on capital gains and the marginal effect of Pease Limitations (which results in a tax rate increase of 1.18 percent). A couple can file their federal income taxes as Married Filing Jointly and file their Massachusetts income taxes as MFS.

additional tax

Generally, you need to massachusetts state income tax at least 80% of your annual income tax liability before you file your return for the year. You pay through withholding and making estimated tax payments on any income not subject to withholding. Your filing status on your Massachusetts personal income tax can affect your exemptions you're and how much you're taxed. Charitable contributions – Massachusetts is slated to allow charitable deductions against Part B income (not long-term capital gains) starting in 2023. One of the purposes of the income tax amendment is said to be getting very wealthy Massachusetts residents to pay their fair share—however that is defined.

Income Tax Rate By State

Exemptions work by reducing the amount of an individual's taxable income. The state exemptions for Massachusetts and its neighboring states as reported by the Tax Policy Center are reported in the chart below. The home was their primary residence so the $500,000 federal home gain exclusion applies. Excluding any improvements they made to the home, realtor fees, etc., the taxable gain is $1.7M. The surtax will increase the Massachusetts tax liability by $68,000 on the sale of their home.

  • If the same taxpayer also had a 2% $100 net long-term loss, the $5 Part C tax would be reduced to $3.
  • Trustees also can focus on the tax-efficiency of distributions from non-grantor trusts to beneficiaries.
  • The state of Massachusetts has a flat rate of the personal income tax rate, unlike the federal or many other states of the USA.
  • Capital is mobile and labor is increasingly so, especially as remote work options have become viable for many more employees post-pandemic.

Under the installment method, tax is paid on each installment in the year the installment is received. However, installment sales may result in increased credit risk for the seller. Beginning in 2023, “in addition to the taxes on income otherwise authorized under , there shall be an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000…reported on any return related to those taxes” .

Income Tax

First, if you owned the property for less than a year, you would be subject to short-term capital gains tax rates, which are essentially the same rates as for income tax. Second, if your taxable income, including the capital gains, is less than $37,650 for a single person and $75,300 for a married couple , there’s no federal tax on capital gain. But beware that the capital gains will be included in the calculation and could put you over the threshold. Third, if your income is more than $415,050 for a single person and $466,950 for a married couple , the federal capital gains tax rate is 20%, bringing the combined federal and Massachusetts rate up to just over 25%. Part A gross income consists of interest, dividends, short-term capital gains and gains on the sale of collectibles.

When do you pay capital gains tax?

Usually, capital gains are reported on your next tax return and taxes are paid at the same time as your standard income tax for the year. However, if you have a large capital gain, it may be worth speaking with a tax advisor to determine if you should make an estimated tax payment while you still have the proceeds in your bank account.

One reason for this is that the graduated income tax would be paid by many small businesses, in addition to wealthy individuals. According to the application of one academic study, if approved, the graduated income tax could contract the Massachusetts economy by $6 billion by end of 2025. Much of the discussion regarding the benefits of the income tax amendment revolve around the $2 billion in new revenue the surtax was estimated to generate. However, if higher earners adapt their behaviors to the new tax, the potential exists that actual new revenues may fall well short of the $2 billion estimate. Per the amendment, any new money the tax does raise would be earmarked for spending on education and infrastructure. Proponents of the amendment have framed the issue as a response to income inequality, with the surtax advertised as only affecting the wealthiest residents of the Bay State and thus ensuring that the wealthy pay their fair share.


On Election Day, it became clear that taxpayers saw both sides of the argument, with the vote remaining too close to call until later the following day. Nevertheless, Question 1 narrowly passed with roughly 52 percent of the vote, marking the first time since 1915 that Massachusetts will transition to a progressive tax system that taxes the highest earners at a higher rate. Pending future guidance, there could be an advantage to creating multiple non-grantor trusts for different family members, rather than a single trust for all of them together. Separate trusts, benefitting different people, with different taxpayer identification numbers should each have their own separate runs up the income scale and they may be able to avoid or limit the application of the Millionaires Tax. A single trust that pools assets for multiple beneficiaries may be more likely to pay this tax during high income years.

The state of Massachusetts has a flat rate of the personal income tax rate, unlike the federal or many other states of the USA. Massachusetts’s individual income tax rate is fixed at 5.00% for all filing status tax returns. States levy taxes to help fund the variety of services provided by state governments. Tax collections comprise approximately 40 percent of the states' total revenues. The rest comes from non-tax sources, such as intergovernmental aid (e.g., federal funds), lottery revenues and fees. The primary types of taxes levied by state governments include personal income tax, general sales tax, excise taxes and corporate income tax.

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