Bill includes $561.3 million in tax relief in Fiscal Year 2024, $1.02 billion in Fiscal Year 2027 and beyond
(BOSTON – 09/28/23) With the goal of providing financial relief to families across the Commonwealth while making Massachusetts more competitive with other states, the Massachusetts Legislature overwhelmingly passed a bipartisan tax relief package supporting residents across all income levels on Thursday. Senator Cindy F. Friedman (D-Arlington) joined her colleagues in voting to send this robust legislation to the Governor’s desk.
“The conference committee’s tax relief package passed in the Legislature today is a major victory for the residents of the Commonwealth,” said Senator Friedman, Vice Chair of the Senate Committee on Ways and Means. “This legislation provides relief to our working class and lower-income residents by raising the caps on child income tax credits, earned income tax credits, and the senior citizen circuit breaker. We also ensure that the provisions of the Fair Share Law are upheld by all taxpayers, increasing much needed investments in our transportation and public education systems. This package increases our competitiveness and will deliver targeted relief for our residents, and I am very thankful for the work of my colleagues serving on the conference committee for their work to deliver this legislation.”
The compromise bill includes the following tax changes:
Child and Dependent Tax Credit
The bill increases the refundable tax credit for a dependent child, disabled adult, or senior from $180 to $310 per dependent in taxable year 2023, and then to $440 in taxable year 2024 and beyond, while eliminating the child/dependent cap. This expanded credit, which will benefit more than 565,000 families, will be the most generous universal child and dependent tax credit in the country.
Earned Income Tax Credit (EITC)
This bill increases the refundable Earned Income Tax Credit (EITC) from 30 per cent to 40 per cent of the federal credit. This increase will provide crucial support to working individuals and families, benefitting nearly 400,000 taxpayers with incomes under $60,000.
Senior Circuit Breaker Tax Credit
This bill doubles the refundable senior circuit breaker tax credit, which supports limited-income seniors facing high rents or real estate taxes, from $1,200 to $2,400. This change is expected to impact over 100,000 seniors across Massachusetts.
Rental Deduction Cap
This bill increases the rental deduction cap from $3,000 to $4,000. This is expected to impact about 800,000 Massachusetts taxpayers.
Short-Term Capital Gains Tax
At 12 per cent, Massachusetts is among the states with the highest short-term capital gains tax rate, and taxes short-term capital gains at a higher rate than long-term capital gains. The bill lowers the short-term capital gains tax rate to 8.5 per cent.
Housing Development Incentive Program (HDIP)
The bill increases the statewide cap from $10 million to $57 million for 2023, and subsequently to $30 million annually, which will provide Gateway Cities with an expanded tool to develop market rate housing. This increase is estimated to create 12,500 new homes in Gateway Cities and spur over $4 billion of private investment in these communities.
Low Income Housing Tax Credit
This bill raises the annual authorization from $40 million to $60 million. This increased cap provides enough funding to spur the creation of thousands of new units of affordable housing annually while also bolstering economic development.
Local Option Property Tax Exemption for Affordable Housing
This new policy will permit municipalities to adopt a local property tax exemption for affordable real estate that is rented by a person whose income is less than a certain level set by the community.
Title V Cesspool or Septic System Tax Credit
This bill will triple the maximum credit from $6,000 to $18,000 and increases the amount claimable to $4,000 per year, easing the burden on homeowners facing the high cost of septic tank replacement or repair.
Massachusetts’ current estate tax, which has not been updated in many years, has become an outlier in several ways. The changes made in this bill update the tax to bring it more in line with other states and eliminate punitive elements of the tax for those with incomes just high enough to trigger it. The bill reduces the estate tax for all taxpayers and eliminates the tax for all estates under $2 million by allowing a uniform credit of $99,600.
Single Sales Factor Apportionment
Currently, most businesses in Massachusetts are subject to a three-factor apportionment based on location, payroll, and receipts. To support companies headquartered in Massachusetts, this bill establishes a single sales factor apportionment in the Commonwealth based solely on receipts, matching what 39 other states currently do.
Additional Tax Changes
- Lead Paint Abatement: Doubles the credit to $3,000 for full abatement and $1,000 for partial abatement, to support families with older homes.
- Dairy Tax Credit: Increases the statewide cap from $6 million to $8 million, to provide more assistance for local farmers during downturns in milk prices.
- Student Loan Repayment Exemption: Ensures that employer student loan payments are not treated as taxable compensation.
- Commuter Transit Benefits: Makes public transit fares, as well as ferry and regional transit passes and bike commuter expenses, eligible for the commuter expense tax deduction.
- Apprenticeship Tax Credit Reforms: Expands the occupations for which this workforce development credit is available.
- Cider Tax: Raises the maximum amount of alcohol for these classes of drinks to 8.5 per cent, allowing more locally produced hard cider and still wines to be taxed at a lower rate.
- Senior Property Tax Volunteer Program: Increases from $1,500 to $2,000 the maximum that municipalities may allow for certain seniors to reduce from their property tax by participating in the senior work-off program.
In addition to tax relief, the bill updates Chapter 62F of the Massachusetts General Laws, which triggered nearly $3 billion in taxpayer refunds in 2022. This law requires that excess revenue be returned to taxpayers when tax revenue collections in a given fiscal year exceed an annual tax revenue cap. The bill passed today ensures that each credit is applied equally to every taxpayer. The bill also adjusts the Stabilization Fund cap, allowing the Commonwealth’s savings account to retain more funding. The bill also closes a loophole in the Fair Share law by requiring married taxpayers who file a joint return with the federal government to file a joint state return, subject to exemptions or adjustments promulgated by the Department of Revenue (DOR).
Having passed the House of Representatives and Senate, the bill now goes to the Governor for her consideration.