On Oct. 4, 2023, Massachusetts Governor Maura Healey signed into law the first major tax cut for the Commonwealth in over a decade.

Taxpayers will see changes when they file for their 2023 taxes. This tax package will provide $561 billion of relief now, with several other provisions that will be phased in by 2027 for a total of $1 billion of tax relief. Healey announced that she is going on a “Cutting Taxes, Saving Your Money” tour throughout the state to raise awareness that the relief provided will expand the workforce and support businesses. Until Healey makes her way to the Berkshires, this column will provide you with enough narrative to bring to your accountant and share with your team and potential employees.

One quick note before we delve into the benefits of this package: one tax opportunity was taken away. Last month in this space, I informed Massachusetts readers how to avoid the so-called Millionaire’s Tax. There were several tactics cited, including a loophole. The bad news for high earners is that the loophole has been closed. The good news is that in its place are several wins for business owners.

Tax relief to employees is support for businesses

For years, American workers benefited from federally suspended tuition payments. For most, those payments resumed on Oct. 1. Before the federal suspension, companies lured employees by subsidizing the workers’ tuition payments. Those payments were a form of income to the worker who needed to claim it as such on their tax return. Healey’s package exempts employer assistance for student loan repayment from taxable income. Also, the package aims to expand the workforce by offering immediate relief to those commuting to work by making public transit and bicycle expenses deductible.

The cost of preschool childcare has kept many people from reentering the workforce. Healey’s package creates what lawmakers say is the country’s most generous child-dependent tax credits, allowing taxpayers a lift from $180 to $330 per child in 2023, increasing to $440 in 2024. That $440 can be combined with other existing credits to help state residents pay for child daycare, making it more feasible for some restricted people to look for jobs.

Other new tax credits can relieve residents, either freeing them up to be potential employees or freeing up their pocketbooks to be a customer. For example, the rental deduction cap is now $4,000, up from $3,000. It also increases the Earned Income Tax Credit from 30 percent to 40 percent.

People want to live where they work

An abundance of excellent restaurants and fun retail opportunities has drawn affluent residents to the town. Those folks are welcomed; they are part of the fabric of the community. They are generous in their time and donations and support the local small businesses through their patronage. However, housing affordability has decreased nationally, making home purchases difficult for Americans across the country, including Great Barrington residents.

In addition to unaffordable housing, Great Barrington is struggling with its volume of affordable rental units. Consequently, workers often need help to afford to live in Great Barrington. Without that assistance, they move out of town. Once those workers move away, businesses must try to attract workers from other municipalities, which can be expensive due to employees’ need to be compensated for travel. In the short term, things like the travel deductions should prove helpful. In the intermediate term, workforce housing should expand due to the increases provided to the Housing Development Incentive Program. That program provides tax credits to developers building workforce housing. Previously, the HDIP was capped at $10 million of tax credits per year. It has been expanded to $50 million on a one-time basis and $30 million annually thereafter. This tax package allocated $57 million to clear the backlog on this overly-subscribed program, allowing an initial substantial increase in units while meaningfully increasing the volume in the future.

Business owners are directly benefited

Entrepreneurs are often among the wealthiest Massachusetts residents, as value accrues to their company throughout decades of ownership. As a result, they are often the hardest hit by the Massachusetts estate tax. Healey’s tax package reshapes the estate tax, which had been one of the nation’s strictest at $1 million. Previously, the entire estate was subject to the estate tax, not just the portion in excess of $1 million. The new threshold is $2 million, and the tax only applies to the amount above $2 million. These changes are effective for the estates of individuals who passed away on or after Jan. 1, 2023.

Business owners have to worry about capital gains tax when they either sell their business, a portion of their business, or property (i.e., assets other than products or services sold in the ordinary course of business). The new law cuts the tax rate on short-term capital gains (profits on investments held less than one year) from 12 percent to 8.5 percent. The change is effective for any assets sold on or after Jan. 1, 2023 (the long-term capital gains rate remains at 5 percent.) Although I’d prefer a cut in the long-term rate, this should encourage outside non-bank equity investment in startup businesses and turnaround opportunities. This tax reduction is well-timed, given the tighter bank lending standards and sky-high borrowing costs.

As of Jan. 1, 2025, Massachusetts corporations will transition to a Single Sales Factor Apportionment, or SSFA, formula for determining sales tax. Previously, Massachusetts calculated sales taxes of companies doing business in multiple states based on the location of property, payroll, and sales. Now the tax will be determined by the amount of sales in the Commonwealth only and not factor in property and payroll. The intention is to streamline the reporting, mitigate the company’s burden of tracking and reporting, and reduce the cost of tax compliance. Previously, the SSFA formula was limited to manufacturing companies, certain financial service providers, and defense contractors. Your company will now benefit if it’s not in one of these industries. However, that means you should consult with your tax professional regarding your next tax filing.

For nearly two years, economists and pundits have declared that the U.S. is on the cusp of a recession. Should one finally occur, Healey’s tax package should insulate Massachusetts businesses. If the economy avoids that prediction, it should provide needed relief to companies and their employees.

This article first appeared in the Berkshire Eagle on October 10, 2023.