In November 2022, Massachusetts voters approved a new tax on millionaires that will take effect in 2023. Under the new law, individuals with annual incomes over $1 million will be subject to an additional 4% tax on income over that threshold. This is on top of the existing 5% state income tax rate, bringing the total tax rate for these high earners to 9%.
While this tax will only affect a small percentage of Massachusetts residents, it has broader implications for other states considering similar measures. Several other states, including New York and California, have considered implementing their own millionaire taxes in recent years. Massachusetts’ success in passing this tax could pave the way for other states to follow suit.
Estate planning also plays a role in this new tax. For wealthy individuals who may be subject to the millionaire tax, it’s important to consider how this will affect their overall tax burden and their estate plan. The additional 4% tax could significantly impact their wealth and the amount they’re able to pass on to future generations.
One strategy for minimizing the impact of the millionaire tax is to engage in charitable giving. Charitable donations can be used to offset income tax liability, and they also have the added benefit of supporting causes that are important to the individual. By making donations to qualified charities, high earners can reduce their taxable income and lower their overall tax bill.
Another strategy is to establish a trust to hold assets and pass them on to future generations. Trusts can be designed to minimize taxes and provide ongoing support for family members. By working with an experienced estate planning attorney, individuals can create a plan that takes into account the impact of the millionaire tax and other potential tax liabilities.
Overall, the new millionaire tax in Massachusetts is likely to have ripple effects beyond the state’s borders. It’s important for high earners to consider how this new tax will impact their overall tax burden and their estate plan, and to work with experienced professionals to develop strategies for minimizing the impact.
If you’d like to discuss whether the millionaire’s tax will affect you, give our office a call or schedule your free introductory phone call.