Tax rates are on the rise, are you prepared?

In November 2022, Massachusetts voters approved an amendment to the Massachusetts Constitution to impose an additional 4% surtax on the portion of a taxpayer’s taxable income that exceeds $1 million. Taxable income is split into three parts: A, B and C.

• Part A income includes interest, dividends, sale of capital assets held less than one-year, long term gains on collectibles, and pre-1996 gains on instalment sales.
• Part B income consists of all income including wage income that is not included in parts A or C.
• Part C income includes the gains from the sale or exchange of capital assets held greater than one year.

In short, all forms of income will be included in the computation of taxable income and may be subject to the additional 4% tax should the total exceed $1 million. Massachusetts recently passed tax relief bill H.4104 that includes a provision to close a “loophole” that allowed married persons to file separately and avoid the 4% surtax on aggregate income. They will require taxpayers who file joint federal returns to also file joint state returns for the tax year beginning January 1, 2024.

Shortly after the bill was passed in Massachusetts, seven other states introduced their own legislation targeting high-income earners. Two of these states were Connecticut and New York. It is important to note that at the time of this article, none of the proposed bills listed below have been passed or signed into law. Here are the details for the proposed bills for New York and Connecticut.

New York

There are three proposed bills. One bill is new, while the other two will add to existing bills previously introduced.

Senate Bill 2162 was introduced on January 19, 2023. This bill proposed an additional tax on long term capital gains, dividends or any type of capital gain income. The proposed increases are as follows:

• 7.5% for married individuals filing jointly, surviving spouses and heads of household with taxable income over $500,000;
• 7.5% for single individuals, married individuals filing separately, and estates and trusts with taxable income over $400,000;
• 15% for married individuals filing jointly, surviving spouses and heads of household with taxable income over $1 million;
• 15% for single individuals, married individuals filing separately, and estates and trusts with taxable income over $800,000.

Senate Bill 1570 was introduced on January 12, 2023. This bill proposes a mark-to-market tax on New York residents with net assets greater than $1 billion at the end of each taxable year starting with 2023.

Senate Bill 3462 (Assembly Bill 4643A) was introduced in January 2021. This bill proposes creating separate taxes on inheritance and gift income. It also looks to amend the computation of estate tax as well as create a gift tax.

Connecticut

There are two proposed bills.

Bill 774 proposes increasing the two highest personal income marginal tax rates to 7.49% and 7.20%. It also wants to establish a 1% and a 0.75% surcharge on the net gain from the sale of capital assets of Connecticut taxpayers in the top two income brackets.

Bill 351 proposes several new and increased tax rates.

• A new 5% surtax for taxpayers in the highest income bracket on the income from the net gain of capital assets sold or exchanged, as well as interest and dividend income.
• A 10% tax on annual gross revenues of any business with gross revenues exceeding $10 billion in digital advertising sales.
• A statewide property tax on commercial and residential real property with an assessed value over $1.5 million.
• Extending and increasing the corporate income tax rate to 11.5%.
• Raising the corporation business tax surcharge to 20%.
• Hiring 50 additional in-house auditors and more wage enforcement agents.
• Additional marginal tax rates for individuals with Connecticut taxable income over $1 million (9.55%, $10 million (10.25%), and $25 million (10.65%).

Of these five newly proposed bills, the one that has made the most progress on its way to becoming law, is CT Bill 351, which passed the state senate on 4/19/22.

Taxes are becoming increasingly more complex every year, don’t try to navigate the waters alone. Contact a Farm Credit East tax specialist today to discuss your situation and options that may be available! 

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