Massachusetts voters approved a tax increase on taxpayers with a net income over $1 million. This 4% surtax is earmarked for education, road repair and maintenance, and public transportation. 

One concern about this tax is that there is no exception for the sale of a taxpayer’s principal residence.  As an example, if a resident bought a house in the 50s for $50,000 and sold it in 2022 for $1.5 million.  The difference between the tax basis of $50,000 and the sale price is $1,450,000 and this is called capital gain income.  The federal tax code taxes capital gains differently from ordinary income but in Massachusetts capital gains are treated the same as other types of income (except for certain short-term capital gains and collectible gains which are taxed at 12%).

Therefore the $950,000 is added to the taxpayer’s other unearned taxable income (such as interest, dividends, and IRA withdrawals, and the amount over $1 million is taxed at 9% instead of 5%.

The sale of a small business may also cause application of the surtax.

This so-called millionaire’s tax will go into effect for tax years beginning on or after January 1, 2023.