The Massachusetts surtax only applies to income above about $1.1 million, so it isn't on most households' radar. But a single unusual year can put you over the line: the sale of a house you've owned for decades, the sale of a business, a large bonus, or a block of company stock that vests all at once. When that year is coming, planning beforehand can give you more options than sorting it out at tax time.

How the surtax works

Massachusetts taxes most income at 5% (short-term capital gains are taxed at a higher rate). Since 2023, income above a threshold has carried an extra 4% surtax. The threshold rises each year with inflation:

  • 2025: $1,083,150
  • 2026: $1,107,750

The surtax applies to income above the threshold, not to all of your income. It covers wages, business income, interest, dividends and capital gains alike. That's why a one-time gain can trigger it even if your salary never would.

What commonly pushes people over

  • Selling a long-held home. Federal law lets many homeowners exclude up to $250,000 of gain, or $500,000 for married couples filing jointly, if they meet the ownership and use tests. In much of Greater Boston, gains on a home bought decades ago can be larger than that.
  • Selling a business or practice. How the sale is structured, and when the money arrives, can change which years the income lands in.
  • Equity compensation. Restricted stock units, stock options and company stock can produce large income in a single year, sometimes with little control over timing.
  • Large retirement account moves. Converting a big traditional IRA to a Roth IRA in one year adds the whole conversion to that year's income.

Planning ideas to discuss with your CPA

Every situation is different, so treat these as questions for your tax professional and your advisor, not as recommendations:

  • Spreading income across years. An installment sale, phased Roth conversions or managing when equity compensation is sold may keep more income below the threshold in any one year. Each has trade-offs: a Roth conversion means paying tax now, and holding company stock longer keeps you exposed to its price swings.
  • Giving appreciated assets. If you already give to charity, donating appreciated stock, or funding a donor-advised fund in a high-income year, can be more tax-efficient than giving cash later. Gifts to a donor-advised fund are irrevocable, and the deduction depends on itemizing and income limits.
  • Using losses. Investment losses realized in the same year can offset gains.
  • Maximizing deductible retirement contributions in the high-income year, where you are eligible.
  • Looking ahead to Medicare. A spike in income can raise Medicare premiums two years later for people on or near Medicare.

The goal isn't to let the tax tail wag the dog. It's to make sure a once-in-a-lifetime event is planned, not just reported after the fact.

How we help

From our office in Boston's Seaport District, we help families and business owners plan around big financial events: modeling the income, coordinating with your CPA and investing the proceeds with a plan. See what we often work on with Boston clients, or request a complimentary consultation.

Sources

This article is general information, not individualized investment, tax or legal advice. Tax laws change, and how they apply depends on your circumstances. Please consult your tax and legal advisors. Radius Wealth Management LLC provides individualized advice only where permitted to do so.