The Massachusetts Millionaire Surtax: 4% on Income Over $1.1 Million.

A founder sells her Massachusetts company, clears $4 million on the deal, and files a return that looks nothing like last year's. On top of the state's usual flat tax, roughly $116,000 of extra tax appears from a line she had never dealt with. That is the Massachusetts millionaire surtax, a 4% add-on that hits every dollar of taxable income above $1,107,750 in 2026. It is easy to ignore in a normal year and impossible to ignore in the year you sell a business, exercise a big equity grant, or take a large capital gain.

Massachusetts voters amended the state constitution in 2022, and for tax years beginning on or after January 1, 2023, a 4% surtax applies on top of the flat 5% rate. Only the income above the threshold is surtaxed, not the whole amount, so this is a true marginal bracket. The Massachusetts Department of Revenue certifies the threshold each year: it was $1,000,000 for 2023, $1,053,750 for 2024, $1,083,150 for 2025, and $1,107,750 for 2026. The base is your total Massachusetts taxable income, the sum of Part A, Part B, and Part C income, which means capital gains and a business sale count right alongside your salary.

Massachusetts taxes most long-term capital gains at the same 5% as ordinary income, and short-term gains at 8.5%. Add the surtax and a large long-term gain is taxed at 9%, while a short-term gain above the threshold reaches 12.5%. For a one-time event, a company sale, a real estate gain above the primary-residence exclusion, or a concentrated stock position, the surtax can add tens or hundreds of thousands of dollars, because the entire gain stacks into a single year and most of it lands above $1,107,750. A homeowner selling a long-held house is a common surprise: the federal §121 exclusion shelters $250,000 of gain, or $500,000 for a couple, but the surtax applies to the taxable gain that remains.

For the first year of the surtax, some married couples split their income by filing separate Massachusetts returns, giving each spouse its own million-dollar threshold. Massachusetts shut that door. For tax years beginning on or after January 1, 2024, a married couple that files a joint federal return must file jointly in Massachusetts too. So a couple gets one threshold, not two, and the surtax applies to their combined income above it. Filing separately on the federal return to work around this generally costs more in federal tax than it saves in state surtax, so it is rarely worth it.

The rate is fixed, so every real strategy is about the size of a single year's taxable income. An installment sale under IRC §453 spreads a business or real estate gain across years, giving each year its own threshold, though it does not work for publicly traded stock. Charitable gifts of appreciated assets, including a large gift to a donor-advised fund in the sale year, cut the taxable income that feeds the surtax. Timing an equity vest or a Roth conversion out of a spike year helps. And for some, the biggest lever is residency: people do leave Massachusetts for New Hampshire or Florida ahead of a large liquidity event, but the state still taxes Massachusetts-source income of nonresidents, and a sloppy move invites the same kind of residency audit that California runs. Establish the move before the income event, not after.

The surtax is not limited to founders cashing out. It applies to every kind of Chapter 62 income above the threshold, so a large Roth conversion, a lumpy retirement plan distribution, the exercise of nonqualified stock options, or a single strong year of consulting income can all cross the line. It also reaches trusts and estates: a trust that accumulates rather than distributes its income is taxed at the entity level and can hit the $1,107,750 threshold on its own. That matters for anyone running a multi-year Roth conversion plan, because converting too much in one year can push the whole household over the threshold and add 4% to the converted dollars that sit on top. Spreading a conversion across several years keeps each year under the line, the same idea as spreading a sale.