Many Massachusetts clients have been inquiring about the impact of the new 4% surtax on income over $1 million dollars. The new income tax surcharge was approved via ballot initiative in November 2022 and applies for tax years beginning on or after January 1, 2023. Massachusetts previously imposed a flat tax of 5%.
While Massachusetts has not issued formal guidance on withholding for the new surcharge, representatives of the Massachusetts Department of Revenue (“DOR”) addressed the matter at a recent tax seminar hosted by the Massachusetts Society of CPAs. The DOR representatives stated that there are no plans to update current withholding instructions to address the new 4% surtax.
DOR representatives said businesses should attempt to estimate the appropriate withholding under the new law. The DOR recognizes there are a number of complexities with the new law and confirmed that DOR will not impose penalties associated with any underpayment of tax for the 2023 tax year.
The current plan is for DOR to publish updated tables for the 2024 tax year, which will address the 4% surtax. Any penalties for under-withholding or under-paying estimated taxes would be in force for 2024.
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