By: State Senator Pavel Payano
10-23
In a landmark achievement of bipartisan cooperation, the Massachusetts Legislature has reached a historic compromise on a comprehensive tax relief package, and I am proud to have cast my vote in favor of it. This extraordinary effort was a true compromise between Democrats and Republicans and between the Senate and the House.
While no one found themselves in complete agreement with every provision, the result is a remarkable compromise that promises to provide much-needed financial relief to many working-class and middle-class families across the Commonwealth.
A Complex Tax Relief Package
The tax relief package is a multifaceted endeavor that addresses various pressing financial issues affecting Massachusetts residents. It is an intricate combination of tax reforms, adjustments, and enhancements aimed at empowering families and ensuring the state remains competitive. This article will endeavor to highlight several key components of this ambitious and far-reaching legislation.
Empowering Massachusetts Families
At its core, this tax relief package is designed to empower Massachusetts families who face financial challenges. It focuses on delivering real financial assistance to those who need it most, acknowledging the difficulties encountered by parents, seniors, young individuals, and middle-class households as they navigate rising costs.
Key Highlights of the Compromise Tax Relief Package
Child and Dependent Tax Credit: This provision significantly increases the refundable tax credit for dependents, disabled adults, and seniors. Starting at $310 per dependent in taxable year 2023 and rising to $440 in taxable year 2024 and beyond, it eliminates the child/dependent cap.
This expanded credit will benefit more than 565,000 families and establish Massachusetts as the home to the most generous universal child and dependent tax credit in the country.
Estate Tax: The compromise reduces Massachusetts’ estate tax and brings it in line with the tax structures of other states. It eliminates punitive elements for those with incomes slightly above the threshold. The estate tax will be reduced for all taxpayers and completely waived for estates valued under $2 million, with a uniform credit of $99,600.
Earned Income Tax Credit (EITC): This critical provision enhances the refundable Earned Income Tax Credit (EITC) from 30% to 40% of the federal credit.
This substantial increase will provide essential support to nearly 400,000 taxpayers with incomes below $60,000.
Single Sales Factor Apportionment: Massachusetts is transitioning to a single sales factor apportionment system, aligning with the approach of 39 other states. This move encourages businesses to maintain their headquarters within the state.
Senior Circuit Breaker Tax Credit: Doubling the refundable senior circuit breaker tax credit from $1,200 to $2,400 will offer vital support to limited-income seniors facing high rents or real estate taxes, benefiting over 100,000 seniors across the state.
Rental Deduction Cap: The cap for rental deductions will increase from $3,000 to $4,000, providing assistance to approximately 800,000 Massachusetts taxpayers.
Short-Term Capital Gains Tax: The compromise reduces the short-term capital gains tax rate from 12% to 8.5%, positioning Massachusetts as a more attractive destination for investment.
Housing Development Incentive Program (HDIP): The package significantly enhances HDIP by raising the statewide cap from $10 million to $57 million for 2023, with subsequent annual increases to $30 million. This substantial boost is anticipated to create 12,500 new homes in Gateway Cities and stimulate over $4 billion in private investment.
Low Income Housing Tax Credit: The compromise raises the annual authorization from $40 million to $60 million, funding the creation of thousands of new units of affordable housing while also bolstering economic development.
Local Option Property Tax Exemption for Affordable Housing: This new policy empowers municipalities to adopt a local property tax exemption for affordable real estate, ensuring access to affordable housing for individuals with lower incomes.
Title V Cesspool or Septic System Tax Credit: The compromise triples the maximum credit from $6,000 to $18,000 and increases the amount claimable to $4,000 per year, providing much-needed relief to homeowners facing the high cost of septic tank replacement or repair.
Additional Tax Changes: The tax relief package also incorporates additional changes, including doubling the credit for lead paint abatement, raising the Dairy Tax Credit cap, exempting employer student loan payments from taxable compensation, expanding the commuter expense tax deduction, and raising the maximum alcohol content for certain classes of drinks.
The passage of this historic tax relief package signifies a new era of financial security, equity, and competitiveness for Massachusetts.
It underscores the ability of the Commonwealth’s legislators to come together, find common ground, and enact meaningful change that will benefit countless residents and businesses.
Pavel Payano is a Massachusetts State Senator representing Lawrence, Methuen, and Haverhill. You can reach him at pavel.payano@masenate.gov. ◊