Massachusetts voters have approved a ballot initiative known as the “Millionaires Tax.” It amends the Massachusetts Constitution to impose an additional 4% tax on annual taxable income in excess of $1,000,000 reported on any income tax return. This means that the rate applicable to compensation and long-term capital gains in 2023 will be 5% for taxable income up to $1,000,000, and 9% for the portion of taxable income over that amount. The income of a nonresident will be subject to the new tax rate to the extent the nonresident has taxable income in excess of $1,000,000 that is deemed to be derived from sources within Massachusetts. The new tax rate is effective for tax years beginning on or after January 1, 2023 and is adjusted annually for inflation.
Many Massachusetts taxpayers are considering strategies to mitigate the effect of the higher tax rate, including the following:
- Income Acceleration into 2022: The 4% surtax does not go into effect until January 1, 2023, so a taxpayer anticipating income soon may want to realize that income in 2022 rather than 2023, if possible. For instance, the sale of a business may be subject to less tax if completed in 2022.
- Spreading Income Among Multiple Taxpayers: Since the amendment refers to income reported on a tax return, it may be beneficial to spread income across the returns of multiple taxpayers.
- Spreading Income Across Multiple Years: Careful planning realize taxable income across multiple tax years can reduce overall tax paid.
- Transfers of Assets to Nonresident Trusts: In general, if a Massachusetts resident transfers assets to a non-grantor trust that is not a Massachusetts resident, then trust income not derived from Massachusetts sources is not subject to tax in Massachusetts.
- Change of Personal Domicile and Residence: Another possibility is for a Massachusetts taxpayer to move out of state so that he or she is no longer domiciled in Massachusetts nor a resident of Massachusetts, and is therefore taxable in Massachusetts only on Massachusetts source income.
We have worked with many clients interested in using New Hampshire trusts or establishing tax domicile in New Hampshire. Please call your attorney at McLane Middleton for further information.
Director, Tax, Trusts & Estates, and Corporate Departments
Steve is a shareholder and director of the firm where he has been a member of its Tax, Trusts & Estates and Corporate Departments for over 25 years. Using his expertise as a licensed CPA as well as an attorney, Steve advises high net worth individuals, families and fiduciaries on estate and income tax planning and administration, and wealth preservation strategies. Steve also serves as Trustee of many significant family trusts; working closely with beneficiaries, family offices, and advisors regarding fiduciary, legal, tax and trust administration issues.
Director, Trusts & Estates
Patrick is a Director in the firm’s Trusts and Estates Department. Patrick focuses on wealth transfer, philanthropic and business succession planning for family offices and high-net worth individuals, including private equity and venture capital principals, real estate developers, private and public company executives, tech entrepreneurs and business owners. Patrick has extensive experience with advanced aspects of New Hampshire’s favorable trust laws, including the formation and administration of private trust companies, private non-charitable and charitable foundations, asset protection trusts, directed trusts, purpose trusts, dynasty trusts, and quiet trusts, as well as advising trustees on the use of decantings, non-judicial settlement agreements, and trustee modifications.
Counsel, Tax Department
Catherine Hines is counsel practicing in the Corporate and Tax Departments. She advises businesses and individuals on broad range of tax-related issues, including partnership and corporate taxation, entity formation, transaction planning, and executive compensation, including design of equity and synthetic equity plans. Before joining the firm, she was a tax associate at Ropes & Gray, LLP in Boston, where her practice focused on representation of private equity fund sponsors and investors, and mergers and acquisitions.
Director & Chair, Trust & Estates Department
Ryan advises individuals and families regarding various estate planning matters, including estate, gift, income and generation skipping transfer tax strategies. He advises fiduciaries in conservatorship, probate and trust administration matters. Ryan also counsels individuals and business owners regarding business succession planning and various asset protection techniques, including limited liability companies and asset protection trusts. Ryan received his J.D., cum laude, from Suffolk University Law School (2003) and his B.A., cum laude, from the University of Massachusetts, Amherst (1999).