Breaking the Code: Summer 2022 Legislative Changes
By: Danny Richmond, Intern
We wanted to provide an update on new tax legislation - both federally with the Inflation Reduction Act passed by the Senate as well as at the state level for Massachusetts residents.
Inflation Reduction Act
Passed into law on Tuesday, the bill will provide a myriad of climate and health care funding, paid by instituting a new corporate minimum tax rate of 15% on the profits of companies with more than $1 billion in annual revenue. A new 1% tax on companies buying back stock is included in the pending legislation as well. Part of the bill also increases funding for the Internal Revenue Service, which has been severely underfunded in recent years.
Massachusetts FY23 Budget
Governor Charlie Baker signed his Fiscal Year 2023 budget on July 28. A highlight of the new budget is updating the Massachusetts income tax conformity date from the 2005 version of the Internal Revenue Code to the one in effect on January 1, 2022. We expect a few of the following changes from this conformity date change noted below, but will be awaiting further clarification from the state:
Qualified Small Business Stock guidelines
Gambling Losses
Alimony Received and Paid post 12/31/2018
Student Loan Interest Deduction
Massachusetts Tax Relief
A tax law from 1986 that’s only been triggered once before may result in Massachusetts’ taxpayers receiving almost $3 billion in relief. The law’s goal was to limit the state’s tax revenue growth to the amount of growth in wages and salaries for the year. If total tax revenue exceeds that amount in 2022, then taxpayers are due a proportional credit. The timing and form of payment or credit is not yet decided: there may be rebate payments to residents or a credit against tax liability.
Massachusetts Millionaire Tax
This November, keep an eye out for a ballot question centered around raising taxes on Massachusetts’ wealthiest residents. The “Fair Share Amendment” would create a 9% income tax rate on annual earnings over $1 million. Any earnings below $1 million would be subject to the normal 5% rate. All revenue from this new tax would go towards education or transportation, subject to appropriation.
Massachusetts House Bill 503: Currently Stalled
The Massachusetts Legislature is working to pass a $4+ billion economic development and tax relief bill that would include the following changes:
Updated Estate Tax Code
Decrease the value of any estate of someone dying on or after January 1, 2023 by $2 million instead of the current $1 million
Additionally, only the amount of the estate’s taxable value that exceeds the $2 million threshold is subject to be taxed, eliminating the “cliff effect” of the current code
Increasing the rental deduction from $3,000 to $4,000
Increasing the credit for dependents or other qualifying individuals to $310 each, from the current $180 credit
Matching 40% of the federal earned income credit instead of the current 30% match
Increasing the senior circuit breaker credit to $2,340, from the current $1,170 credit
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.