Massachusetts Millionaires' Tax: The 4% Surcharge on Equity-Heavy Years

Massachusetts voters approved the Fair Share Amendment in 2022, adding a 4% surcharge on personal income above $1 million. The rule took effect for tax year 2023. The threshold is indexed to inflation, for 2025, the threshold is $1,083,150.

For Massachusetts tech employees with lumpy equity income, IPO year, large RSU vests, secondary sales, the surcharge applies to all dollars above the threshold. A senior IC with $2.8M of taxable income in an IPO year pays an additional 4% on $1.72M = $68,800 in surcharge beyond the base 5% state income tax.

Combined with the federal 37% bracket, NIIT, and FICA, the effective rate on high-dollar Massachusetts income approaches 47-50%.

Structure and mechanics

Massachusetts has a flat 5% personal income tax rate. The millionaires’ tax adds 4% on top of the 5% base, creating an effective 9% rate on income above the threshold. Total:

• First $1,083,150 (2025): 5%
• Above $1,083,150: 9%

Both earned and investment income count toward the threshold. RSU vest income, capital gains, interest, dividends, and wages all aggregate.

What counts toward the $1M threshold

The threshold is applied to Massachusetts taxable income, which includes:

• Wages (including RSU vest income)
• Short-term capital gains (Massachusetts taxes at 8.5% flat, plus 4% surcharge if total exceeds threshold)
• Long-term capital gains (5% flat, plus 4% surcharge)
• Dividends (5%)
• Interest (5%)
• Business income

The threshold is joint for married filing jointly. A couple’s combined income above $1,083,150 triggers the surcharge.

Specific tech situations

IPO year. A senior IC at an IPO tech company might have $500K base + $3M RSU vest in the IPO year = $3.5M taxable income. Massachusetts tax:

• First $1,083,150 at 5% = $54,158
• Remaining $2,416,850 at 9% = $217,517
• Total MA tax: $271,675

In a normal year at $500K, the tax would be $25,000. The IPO year adds roughly $247K of Massachusetts tax, most of it from the 4% surcharge on the excess.

Secondary sales. Pre-IPO secondary sales of founder or employee stock at private-market valuations also count. A $2M secondary sale in a single year pushes well above the surcharge threshold if combined with normal wages.

Capital gains concentration. Liquidating $1.5M of long-term appreciated stock in a single year means the excess above the threshold is taxed at 5% + 4% = 9%, versus 5% if spread across multiple years.

Spreading income across years

The surcharge is year-by-year. Spreading $3M of income over 3 years ($1M per year) keeps each year below the threshold and avoids the 4% surcharge entirely.

Planning approaches:

• Stagger RSU sales across calendar years
• Use 10b5-1 plans to automate distribution
• Elect deferred comp at vesting where available
• Time exchange-fund contributions to level income

For a pre-IPO employee expecting large vests at IPO, some of this is fixed, you can’t control when the liquidity event fires. But post-IPO lockup releases can be managed through 10b5-1 planning and selective sale timing.

Deductions and offsets

The surcharge is on Massachusetts taxable income after deductions. Strategies that reduce AGI reduce exposure:

• Maximum 401(k) contribution (pre-tax): $23,500 + catch-up
• HSA contribution: $8,550 family
• Charitable deductions (itemized federally, flow through for MA)
• Business deductions for self-employed

A senior IC maxing 401(k) and HSA reduces Massachusetts taxable income by $32,050. On a year just above the threshold, this can pull income back under the $1.083M line.

Relocation as a strategy

Massachusetts residents considering relocation face specific considerations:

Move to no-tax state. New Hampshire, Texas, Florida, Nevada all have no state income tax. For a tech employee facing a large equity year, a pre-IPO relocation can save 5-9% on the vest income.

Move to low-tax state. Other low-tax options include Tennessee (no income tax after 2021), South Dakota, Wyoming.

Remote work considerations. Massachusetts’s approach to remote workers has shifted. During the pandemic, MA briefly taxed NH residents working remotely for MA employers; this was rolled back. Currently, MA source rules apply to days actually worked in MA.

Departure timing matters. Moving on December 31 of an IPO year doesn’t help, the full calendar year of income was while resident. Moving well before the liquidity event is the effective approach.

Trailing nexus for moved residents

Massachusetts has trailing-nexus provisions similar to California but less aggressive. Equity compensation from MA employers vesting after a move is partially MA-source based on days worked in MA during the vesting period.

For a pre-IPO employee who received grants while in MA and moved to Florida 2 years before IPO, the MA share of the vest is roughly the ratio of MA workdays to total workdays. For a 4-year grant with 2 years of MA workdays and 2 years of Florida workdays, MA-source is roughly 50%.

Millionaires’ tax and capital gains

Long-term capital gains in MA are normally taxed at 5%. The millionaires’ tax adds 4% on income above the threshold, including capital gains. So a resident with $1.2M of long-term gains (and no other income) pays:

• First $1,083,150 at 5% = $54,158
• Remaining $116,850 at 9% = $10,517
• Total MA tax on gains: $64,675 (vs $60,000 at flat 5%)

The surcharge on capital gains adds $4,675 for this example. For larger gains, the impact is proportionally larger.

Estate and gift tax separate

The millionaires’ tax is an income tax. Massachusetts also has an estate tax with a $2M exemption (2025) and top rate of 16%. These are separate taxes. Both can apply to the same wealth at different life stages.

Frequently asked

Does the millionaires’ tax apply to gains already held long-term? Yes. The 4% surcharge applies to long-term capital gains recognized while a Massachusetts resident, regardless of how long the assets were held. The holding period affects the base tax rate (5% for LTCG vs 8.5% for STCG) but not the surcharge.

What about Roth conversions? Roth conversions count toward Massachusetts taxable income. A $500K Roth conversion in a $900K-base year pushes total income to $1.4M and triggers the surcharge on $317K of the conversion.

Does §6501 statute apply to Massachusetts? Massachusetts’s assessment period is 3 years generally, 6 years for substantial omission. Similar to federal §6501 but separately applied.

How does this compare to NYC’s total rate? NYC resident tops out at NY 10.9% state + 3.876% city = 14.78%. Massachusetts with surcharge tops at 9%. NYC is higher, but Massachusetts hits at lower income levels. Depends on income level which is worse.

What about trailing nexus on pre-move RSUs? Same workday allocation principles as California, though Massachusetts enforcement is less aggressive. Keep workday records for at least 4 years (Massachusetts’s basic assessment period).