The new law creates a 4% tax on annual income over $1 million, on top of the state’s current 5% flat income tax, to fund public education, roads, bridges and public transportation. The levy is expected to affect about 0.6 percent of Massachusetts households, according to an analysis by the Center for Public Policy Analysis at Tufts University. More from Personal Finance: Voters back higher minimum wage in Nebraska and DCHow to avoid Medicare scams during open enrollment GOP complains about ‘suspicious timing’ of IRS letters “Democrats have been working for a long time to add some tax brackets and progressivity to this system,” said Richard Auxier, senior policy fellow at the Urban-Brookings Tax Policy Center, pointing to Massachusetts’ current flat 5 percent income tax, regardless from profits. But California voters rejected a similar tax, aimed at paying for zero-emission vehicle programs and wildfire response and prevention. The measure would have added a 1.75 percent levy on annual income over $2 million, on top of the state’s top income tax rate of 13.3 percent. “It’s very state-specific,” Auxier said, explaining how tax ballot initiatives can depend on funding priorities, the current state tax structure and other factors.

Tax preparers to be ‘very busy’ with Bay State clients

While the measure was only approved earlier this week, many wealthy residents were already discussing the impact with advisers.
“That’s definitely on people’s minds,” said Jim Guarino, a certified financial planner, CPA and managing director at Baker Newman Noyes in Woburn, Massachusetts. He said discussions with customers began as soon as the initiative was announced. The informed will now work more closely with their advisors and look for ways to minimize or avoid the additional tax. Jim Guarino Managing Director at Baker Newman Noyes The new tax is estimated to raise about $1.3 billion in revenue during fiscal 2023, according to the Tufts analysis. However, Guarino expects lower numbers due to tax planning and in some cases, “leakage” from some higher earners moving out of state. “The informed will now work more closely with their advisors and look for ways to minimize or avoid overtaxing,” he said. For example, someone might consider growing their income over a period of years, rather than “one big hit” that will push them past the million-dollar mark in 2023, Guarino said. In other cases, they may try to take some of next year’s profits in 2022, before the law takes effect, he said. “If you can defer taxable income, that’s usually a good thing,” Guarino noted. “But in this case, income acceleration can give you an immediate 4% [tax savings] at the state level. “I think we’re going to be busy the next six or seven weeks with our customers in Massachusetts,” he added.