In 2022, Massachusetts voters approved a 4% “millionaire’s tax” on taxable income above $1 million (Indexed annually for inflation; the threshold is $1,083,150 for 2025), which went into effect in 2023.
Opponents warned that the proposal would have a multitude of negative outcomes: Wealthy people would leave the state en masse, or move their money offshore, or that high earners would purposely endeavor to keep their taxable income under the threshold, or it would cost more to administer than than revenue it produced. Why, all kinds of scary things might happen if this irresponsible proposal is enacted!
Well, MA voters saw through that BS and approved the ballot measure anyway.
Here’s the tax in a snapshot, courtesy of Mass.gov:
The 4% surtax applies to all chapter 62 taxpayers, including individuals, trusts, estates, and unincorporated associations, that have taxable income exceeding the surtax threshold in a taxable.
The 4% surtax applies to taxpayers who are required to file:
- Form 1 (residents),
- Form 1-NR/PY (nonresidents and part-year residents),
- Form 2 (trusts and estates),
- Form M-990T-62 (exempt trusts and unincorporated associations), or
- Form 3M (clubs and other organizations not engaged in business for profit).
That would seem to cover just about everyone. But how is “taxable income” calculated?
Again, from Mass.gov:
A taxpayer’s taxable income for determining the 4% surtax is the sum of a taxpayer’s Part A, Part B, and Part C taxable income for a tax year.
- Part A income consists of short-term capital gains, long-term gains on collectibles, and interest and dividends other than Massachusetts bank interest.
- Part B income consists of all other taxable income not included in Part A or Part C.
- Part C income consists of long-term capital gains.
In adding up the sum of Part A, Part B, and Part C, any Part that is negative is treated as 0. In other words, only Parts with positive taxable income amounts are added together.
That’s a shit ton more than just earned wages. Great, I love it.
So, if your wages from your job, plus income from interest, dividends, and capital gains bumps your total income to, say, $2,000,000, you’ll pay a surcharge of $36,674 [($2,000,000 — $1,083,150) x 4%] on top of your regular MA income tax. Oh, and it looks like you can’t carry over stock losses from prior years to offset current gains and lower your tax bill. Nice.
In my view, someone making that kind of money can easily afford to pay the state an extra 1.8% of their $2,000,000. Hell, most of ‘em wouldn’t even notice it.
So how’s it working so far?
According to Boston.com:
The surtax generated $2.46 billion in its first full year — about $1.3 billion of it surplus — which lawmakers in the House and Senate are now debating how to spend.
I’ll bet it’s a lot more fun to debate how to spend a surplus than to deal with a deficit. It’s sure more fun for me, in my personal experience.
For 2025, latest data, again from Boston.com:
Massachusetts Budget and Policy Center, a left-leaning think tank, projected that the surtax would generate about $2 billion annually. However, the surtax has brought in way more, with taxes generated between February and April alone this year generating $1.5 billion.
As for all those those wealthy people who would leave the state if this abomination became law?
According to a report from the Institute for Policy Studies and the State Revenue Alliance, people with a net worth of over $1 million grew from 441,610 in 2022 to 612,109 in 2024.
Now, a net worth over $1 million doesn’t equate to total an annual income over $1million. Shit, our net worth barely exceeds that, being all in the house (according to Zillow) and our IRAs, and I’m just a regular retired guy who did kind of OK. So I dug a little deeper into the report referenced above and found this:
Data from the IRS’ Statistics of Income program demonstrate that the number of tax returns that reported an adjusted gross income (AGI) of a million dollars or more in Massachusetts has grown by 36 percent between 2018 and 2022 – from 20k to 27k. Tax stats from the IRS for 2023 are currently not available.
2023 was the first year the surcharge was applied, so the above data is from a year earlier. But, Federal tax code doesn’t calculate taxable income in the same way that the MA “millionaire tax” does, so the number of very well-off folks affected in 2023 and beyond must be, ahem, somewhat larger than the 27,000 filers who reported $1 million or more in Federal taxable income in 2022. This tax on wealth generated $2.46 billion in it’s first year. There’s no way 27,000 taxpayers paid state taxes of ~$91,000 each more in 2023 than in 2022. Damn, there’s a lot of untaxed money out there. And it ain’t ours.
This surcharge relies in large part on capital gains, so some years will inevitably generate lower returns, but if they’re smart, they’ll keep a rainy day fund to cover those times. Besides, the rich always stay rich or get richer, regardless of the economy. They’ll still be paying that “millionaires tax”, no matter what the rest of us are going through.
Anyway, this policy seems to be working as intended in MA so far. It’s surely not perfect, but nothing is. We’ll see how it goes, but the trend is looking good.
Huh. It’s notable that even in blue Massachusetts, this had to be passed via a ballot initiative. My home here in Michigan would have to do the same. Sigh. Republicans..
Take care, all!
-ER
