The Massachusetts millionaires tax is a 4% surtax on the portion of your Massachusetts taxable income that exceeds an inflation-adjusted threshold, which is $1,107,750 for the 2026 tax year.1Mass.gov. 2026 Form 2-ES Massachusetts Estimated Income Tax It sits on top of the state’s regular 5% flat rate, so ordinary income above the line is taxed at a combined 9%. Voters added it to the state constitution in November 2022, and the revenue is dedicated to public education and transportation.
The Threshold Rises Each Year
The original threshold written into the constitution was $1 million. The Department of Revenue adjusts it annually for cost of living. The certified thresholds so far: $1,000,000 for 2023, $1,053,750 for 2024, $1,083,150 for 2025, and $1,107,750 for 2026.2Mass.gov. FY26 Period 1 – Surtax Certification
Only the income above the threshold is surtaxed. If your 2026 Massachusetts taxable income is $1,207,750, the 4% applies to $100,000 of it, for $4,000 in additional state tax.3Mass.gov. 4% Surtax on Taxable Income: The Basics One threshold applies per tax return, which becomes important for married couples.
What Income Counts Toward the Threshold
The measurement is your Massachusetts taxable income, not your federal AGI. State-level deductions and exemptions reduce the number tested against the threshold. If income is included in your Massachusetts taxable income, it counts. If it’s excluded, it doesn’t. There are no special carve-outs for the surtax.4Mass.gov. Massachusetts 4% Surtax on Taxable Income
Massachusetts sorts taxable income into three parts. Part A is short-term capital gains, gains on collectibles, and most interest and dividends. Part B is wages, salaries, business income, rental income, and other ordinary income. Part C is long-term capital gains. Add all three together (treating any negative part as zero) to get the number measured against the threshold.4Mass.gov. Massachusetts 4% Surtax on Taxable Income
Home Sale Gains
Selling a home is one of the most common ways people cross the line in a single year. The federal exclusion still applies for Massachusetts purposes, so you can shield up to $250,000 of gain on a primary residence ($500,000 for joint filers). Any gain above that exclusion is fully included in your Massachusetts taxable income and counts toward the surtax.4Mass.gov. Massachusetts 4% Surtax on Taxable Income Decades of appreciation combined with your regular income can push you well past the threshold in the year of sale.
Retirement Distributions
Distributions from 401(k) plans, traditional IRAs, and government pensions are fully taxable in Massachusetts and count toward the threshold. A large rollover, a Roth conversion, or a big required minimum distribution can create a surtax bill you didn’t see coming. Social Security benefits, by contrast, are exempt from Massachusetts income tax and don’t count toward the threshold at all.5Mass.gov. View Tax Treatment of Retirement Plan Contributions and Distributions
How Much You Actually Owe
The surtax math is simple: subtract the threshold from your total taxable income and multiply by 4%.3Mass.gov. 4% Surtax on Taxable Income: The Basics The complication is that Massachusetts taxes different income at different base rates, and the 4% stacks on top of whichever base rate applies. Most income is taxed at 5%. Short-term capital gains are taxed at 8.5%. Long-term gains on collectibles are taxed at 12%, though a 50% deduction on the gain itself cuts that in half in practice.6Massachusetts Department of Revenue. Massachusetts Tax Rates So ordinary income above the threshold is taxed at 9% and short-term gains above the threshold at 12.5%.
A concrete example. Say your 2026 Massachusetts taxable income is $1,307,750: $1,107,750 in wages and $200,000 in short-term capital gains. Your regular tax is 5% on the wages ($55,387.50) plus 8.5% on the short-term gains ($17,000). Add the 4% surtax on the $200,000 above the threshold ($8,000). Total state income tax: $80,387.50.
Married Couples Should Compare Joint vs. Separate
Massachusetts applies the same threshold to every return, whether filed by one person or by a couple filing jointly. This is unusual among states with high-earner surcharges, and it creates a meaningful reason for high-income married couples to file separately in Massachusetts. When each spouse files their own return, each gets a full threshold applied to their own income.7Mass.gov. Filing Status on Massachusetts Personal Income Tax
Consider a couple where each spouse earns $900,000. Filed jointly, their combined $1.8 million exceeds the 2026 threshold by roughly $692,250, generating a surtax of about $27,690. Filed separately, neither crosses the threshold, and the surtax is zero.
Separate filing has costs. You lose access to certain Massachusetts credits and deductions, including the earned income credit, the Circuit Breaker property tax credit for seniors, and education savings deductions.7Mass.gov. Filing Status on Massachusetts Personal Income Tax For couples near or above the threshold, the surtax savings usually outweigh those losses, but run it both ways. You can pick a different filing status on your Massachusetts return than on your federal return.
Non-Residents and Part-Year Residents
Non-residents pay Massachusetts income tax only on Massachusetts-source income, and the surtax follows the same rule. Only Massachusetts-source income counts toward the threshold, and only that income can be surtaxed.4Mass.gov. Massachusetts 4% Surtax on Taxable Income Income is Massachusetts-sourced when it comes from services performed in the state, real estate located in the state, or a trade or business carried on in the state.8Massachusetts Department of Revenue. 830 CMR 62.5A.1: Non-Resident Income Tax
Selling a business interest is a common trap. Gain from selling an interest in a sole proprietorship, general partnership, or LLC that operates in Massachusetts is generally treated as Massachusetts-source income. Selling stock in a C or S corporation typically is not sourced to Massachusetts, unless the gain is tied to compensation for services or the corporate form was adopted to avoid Massachusetts tax.8Massachusetts Department of Revenue. 830 CMR 62.5A.1: Non-Resident Income Tax Entity type matters, and the DOR scrutinizes transactions that look structured to sidestep sourcing.
Part-year residents are taxed on income from their Massachusetts period plus any Massachusetts-source income earned elsewhere. The threshold is not prorated for a partial year. You must exceed the full amount before the surtax applies, even if you lived in the state only a few months.4Mass.gov. Massachusetts 4% Surtax on Taxable Income
Estimated Payments and Penalties
If you expect to owe the surtax, include it in your quarterly estimated tax calculation.1Mass.gov. 2026 Form 2-ES Massachusetts Estimated Income Tax Underpayment gets expensive. Massachusetts charges interest on underpaid estimated tax at the federal short-term rate plus four percentage points, and the DOR cannot waive that interest.9Mass.gov. Massachusetts Penalties and Interest Assessed by DOR
To avoid penalties, you generally need to pay at least 80% of your current-year tax liability through withholding and estimated payments before filing. The alternative safe harbor is paying an amount equal to or exceeding your prior-year tax liability, as long as the prior year covered a full 12 months and you filed a Massachusetts return.10Mass.gov. Massachusetts DOR Personal Income and Fiduciary Estimated Tax Payments The prior-year safe harbor is especially useful in a year with an unusual spike from a home sale or business exit, since your prior-year tax is a known figure.
Ways to Reduce or Avoid the Surtax
The right strategy depends on what pushed you over. For one-time events like a home sale or business exit, the goal is usually to spread the income across years. An installment sale lets you recognize gain over the payment period rather than in a single year, potentially keeping each year below the threshold.
Charitable giving reduces Massachusetts taxable income and can bring you back under the line. Massachusetts allows a deduction for charitable contributions made during the tax year, and that deduction directly lowers the number tested against the threshold.11Massachusetts Department of Revenue. 830 CMR 62.3.2: Charitable Contribution Deduction Donor-advised funds let you “bunch” several years of giving into one year, which pairs well with income-deferral in the other years.
Business owners can look at the elective pass-through entity excise. When a partnership, LLC, or S corporation elects to pay the PTE excise at the entity level, its owners claim a credit against their personal income tax. Because the personal income tax includes the 4% surtax, the credit can offset the surtax portion of the bill, and any excess credit is refundable.12Mass.gov. Elective Pass-Through Entity Excise
Changing your domicile is the last resort. Moving out of Massachusetts eliminates the surtax on income not sourced to the state, but the DOR examines these moves closely. Wintering in Florida isn’t enough. You need to abandon your Massachusetts domicile by terminating your lease or selling your home, establish a genuine new permanent residence elsewhere, and show you don’t intend to return.13Massachusetts Department of Revenue. Legal and Residency Status in Massachusetts Even after moving, you remain a statutory resident if you keep a permanent place of abode in Massachusetts and spend more than 183 days in the state during the tax year.14Massachusetts Department of Revenue. TIR 95-7: Change in the Definition of Resident for Massachusetts Income Tax Purposes The burden of proving a domicile change falls entirely on the taxpayer.