Massachusetts Income-tax Rate Dropping to 5% on Jan. 1
BOSTON — The Baker-Polito administration announced that the state’s Part B individual income-tax rate will be reduced from 5.05% to 5% effective Jan. 1, 2020. This upcoming tax cut represents the conclusion of the statutory process laid out in a 2002 state law to lower the income tax rate to 5% based on certain state revenue milestones, and will return $88 million in FY 2020 and approximately $185 million in FY 2021 to taxpayers.
“Starting in January, the income-tax rate will be the lowest it has been in decades, allowing Massachusetts taxpayers to be able to keep more of their hard-earned money,” Gov. Charlie Baker said. “Our administration is working to keep the Commonwealth’s economy strong while maintaining fiscal discipline, and now we are finally making happen what voters called for almost 20 years ago.”
The 2002 law provides that, for each tax year in which certain inflation-adjusted baseline revenue-growth requirements are met, the income tax rate will be reduced by increments of 0.05 percentage points until the rate reaches 5%. The legislation replaced a tax-rate reduction schedule that had passed by ballot initiative in November 2000.
“Consistent increases in state revenue are triggering this final income-tax rate reduction,” said Administration and Finance Secretary Michael Heffernan. “This is excellent news for Massachusetts taxpayers, and it was incorporated into our assumptions for FY 21, so there is no change in our revenue outlook.”
Part B income includes wages, salary, and many other forms of income, including self-employment income; business, professional, and farm income; S-corporation distributions; and rental income from personal property. The rate associated with Part B income is also applied to several other income categories, including interest and dividends and most long-term capital gains.