What the $1B+ Mass. tax relief plan could mean for you

Massachusetts lawmakers unveiled a tax relief package Tuesday aimed at delivering $561 million in reductions to taxpayers and companies during the current fiscal year through a slew of tax credits and other steps aimed at lowering tax burdens.

The proposal — which would top $1 billion in tax relief by the 2027 fiscal year when fully phased in — includes more than a dozen specific tax proposals, from eliminating the tax for estates under $2 million to increasing the child and dependent tax credit from $180 to $330 per child or dependent in the current tax year to $440 for the 2024 tax year.

The final deal caps off more than a year and a half of debate and takes aim at a pair of issues that have been top of mind for policymakers: the increasingly unaffordable cost of living here, and a growing fear that Massachusetts is not competitive enough to attract the businesses and workers its economy needs.

So what does the proposal, which its backers call historic and could be signed as soon as this week, if it passes, mean for you? Here's what to know:

Child tax credits

Lawmakers say the increased child tax credit will benefit 565,000 families and will be the most generous universal child and dependent tax credit in the country.

A low-income household with two children will see its tax refund check increase by more than $1,000 if the bill becomes law, Democratic Senate President Karen Spilka said, calling it "real money."

The credit would rise from $180 to $310 in fiscal year 2023, then again to $440 in fiscal years 2024 and beyond. It's the package's largest item, worth about $165 million this year and up to $307 million once fully implemented.

But it's not the $600 child and dependent tax credit that Gov. Maura Healey campaigned on, Politico noted.

Other family-focused pieces of the final package revive measures both branches initially approved last year, before lawmakers retreated from targeted tax relief.

The bill would increase the Earned Income Tax Credit that supports lower-income families from 30% to 40% of the federal credit, double and index to inflation the maximum senior circuit breaker tax credit and increase the cap on the rental deduction from $3,000 to $4,000, according to the summary.

Rental deduction

The bill would also increase the cap on the rental deduction from $3,000 to $4,000, reduce the tax rate on short-term capital gains from 12% to 8.5% and allow cities and towns to adopt a local property tax exemption to encourage affordable housing.

Filing taxes jointly

The bill would require married taxpayers who file a joint return with the federal government to file a joint return at the state level as well.

Lawmakers and their allies who backed the new 4 percent surtax on personal income above $1 million, which voters approved in November, have warned that married couples who together earn more than $1 million could avoid triggering the surtax by filing individual returns. The Massachusetts Budget and Policy Center estimated that high-income households using that maneuver could cut the state's annual surtax revenue between $200 million and $600 million.

The bill summary said the joint-filing requirement would be "subject to exemptions or adjustments promulgated by the department of revenue."

Excess tax refund

The bill would make changes to a 1986 law designed to limit state tax revenue growth and return any excess to taxpayers. The law, Chapter 62F, triggered nearly $3 billion in refunds last year.

Under the current iteration of the law, Massachusetts must return excess tax revenue in proportion to what each taxpayer paid. Last year, the highest-earning Bay Staters got rebate checks for thousands or tens of thousands of dollars and lower-earning taxpayers received a few hundred dollars or less.

The new bill would keep the law but ensure the money is paid out equally among taxpayers, lawmakers said.

Estate tax

The bill would provide a uniform estate tax credit of $99,600, which would effectively double the threshold at which the levy kicks in from $1 million to $2 million. Supporters have said the existing trigger is among the lowest in the country, making Massachusetts an outlier.

That change would cost $128 million in FY24 and $213 million by FY27, according to the summary.

Capital gains tax

The accord would slash the tax rate on short-term capital gains, which stem from the sale of assets held for a year or less, from 12% to 8.5%. Democrats had been divided on how to approach that reform, with the House originally supporting an eventual reduction to 5 percent and the Senate preferring not to touch the existing 12% rate.

A cost breakdown estimated the short-term capital gains tax cut will carry a total price tag of $42 million in FY24 and $49 million in FY27.

Miscellaneous

Among the other changes to the tax code include:

• Public transit fares, including on ferries, regional transit passes and expenses related to commuting by bike, are eligible for the commuter expense tax deduction.
• Expanding the Housing Development Incentive Program, which would rise from $10 million to $57 million in the first year and then settle at $30 million annually thereafter, and increasing the annual authorization for the Low Income Housing Tax Credit from $40 million to $60 million.
• Tripling the maximum tax credit for homeowners replacing or repairing septic tanks, from $6,000 to $18,000.
• Doubling the tax credit for families abating lead paint in older homes, to $3,000 for a full abatement and $1,000 for a partial abatement.
• Codifies that employer student loan payments are not considered taxable compensation.
• How Massachusetts calculates taxes owed by multistate companies. Currently, the apportionment system factors in property, payroll and sales, and the bill would replace that with a simplified version that uses only a company's sales. Supporters have suggested the update would encourage more companies to base their headquarters in Massachusetts.

What lawmakers are saying about the bill

Spilka called the proposal historic.

“It is the largest bipartisan legislative tax relief proposal in over a generation,” Spilka said. “This tax relief bill will help alleviate many, many financial burdens that our families, our seniors, our renters face and put real dollars in their pockets.”

House Speaker Ronald Mariano, a fellow Democrat, also praised the bill, in particular the provision that strengthens from $1,200 to $2,400 the maximum senior circuit breaker tax credit, a refundable credit for senior citizens based on real estate taxes or rent paid on residential property owned or rented as a principal residence.

“It's one of the greatest programs that we've ever come up with in my time involved in the state where you can actually get money to stay in your house, even if you don't pay state taxes,” Mariano said.

What's next

The bill is expected to be voted on Wednesday in the House and Thursday in the Senate.

If approved, the next stop is Healey's office for her signature.

Healey called tax relief essential for making Massachusetts “more affordable, competitive and equitable.”

“This is a comprehensive package that delivers relief to families and businesses, including through our proposed Child and Family Tax Credit,” Healey said in a written statement. “I look forward to reviewing the details.”

Healey released her own $742 million tax relief package in February. Her proposal would have eliminated the tax for estates valued up to $3 million. Massachusetts is one of just 12 states with an estate tax.

In April, Massachusetts House lawmakers overwhelmingly approved their own $654 million tax relief package, followed by the Senate, which unveiled a $590 million tax relief proposal in June.