Massachusetts 4% Surtax: Who Pays in 2026

The Massachusetts 4% surtax is the extra state tax on the slice of taxable income that sits above an inflation-indexed line. For tax year 2026, the Massachusetts Department of Revenue sets that line at $1,107,750. Only the dollars over the line are taxed at an extra 4%. A Worcester County owner who sells a business, a rental, or a long-held home can cross it in a single year even when a normal salary never would.

Plan the year before a large gain is locked in

What the Massachusetts 4% surtax actually taxes

Voters approved the surtax in November 2022. It took effect for tax year 2023 under Massachusetts General Laws chapter 62, section 4. The statute starts the line at $1,000,000 and then adjusts it each year for the cost of living. The Department of Revenue publishes the current figure on its 4% surtax page, last updated June 1, 2026.

The tax is marginal. Crossing the line by a small amount does not reprice every dollar you earned. You subtract the year's threshold from taxable income, then multiply only the difference by 4%. That amount is reported on the return in addition to the regular Massachusetts tax on the same income.

Tax year	Surtax threshold	What the 4% applies to
2023	$1,000,000	Only income over the line.
2024	$1,053,750	Only income over the line.
2025	$1,083,150	Only income over the line.
2026	$1,107,750	Taxable income over the line only

Use the row for the year the income is taxed, not the year you started negotiating a sale. A closing that slips from December 2025 into January 2026 uses the 2026 line of $1,107,750, not the 2025 line of $1,083,150.

Who pays, including a one-time sale

The surtax covers chapter 62 taxpayers whose taxable income exceeds the year's threshold. The Department of Revenue names five groups that must watch the line.

• Residents file Form 1.
• Nonresidents and part-year residents file Form 1-NR/PY.
• Trusts and estates file Form 2.
• Certain exempt trusts and unincorporated associations file Form M-990T-62.
• Clubs and similar nonprofit groups file Form 3M.

A one-time event counts. Selling a business, a rental property, company stock, or a highly appreciated home can push taxable income over the line for that year and no other. Wages, pensions, taxable retirement distributions, interest, dividends, and both short-term and long-term gains can all feed the total. The label "millionaire" is about the year's taxable income, not about net worth or a salary that stays high every year.

Nonresidents have an extra filing rule. A nonresident whose Massachusetts-source taxable income exceeds the threshold must file Form 1-NR/PY to report the surtax, even when that person is also on a composite return. Income already reported on the composite return still has to be included, and composite payments should be claimed on the individual form so the same tax is not paid twice. The Department of Revenue covers this in its special rules for nonresident composite filers.

A plain example for 2026

Say taxable income for 2026 is $1,400,000 because a business sale closed on top of a normal year. The amount over $1,107,750 is $292,250. The surtax is 4% of $292,250, or $11,690. The regular Massachusetts tax on that income is still computed under the usual Part A, Part B, and Part C rates. The $11,690 is only the extra 4%.

How Massachusetts adds up the income

Taxable income for the surtax is the sum of Part A, Part B, and Part C. The Department of Revenue defines each part on its surtax page.

• Part A includes short-term capital gains and long-term gains on collectibles. It also includes interest and dividends other than Massachusetts bank interest.
• Part B is the rest of taxable income. That includes wages and most items that are not in Part A or Part C.
• Part C is long-term capital gains.

A negative part does not reduce the final surtax base. When Part A, Part B, and Part C are added, a negative part is treated as zero. A loss in one part does not shrink a gain in another part at this last step.

A loss can still reduce another part earlier, but only to the extent chapter 62 already allows. Excess Part B losses, for example, may be deducted against capital gains from a trade or business when Part A or Part C taxable income is computed. Once each part's taxable income is set, a leftover negative stays out of the addition.

That stacking is why a sale and a salary in the same year belong on one worksheet. It is also why this article does not walk through basis, holding period, or selling costs. Those steps belong in the firm's capital gains guide for Massachusetts. Finish that math first, then bring the resulting taxable gain into the surtax total.

Short-term gains and collectibles already sit in Part A at higher Massachusetts rates before the surtax is added. Long-term gains sit in Part C, generally at the 5% rate, before the same 4% is added to the slice over the line. The surtax does not replace those rates. It stacks on top of them for the dollars past the threshold.

What you can plan before the year closes

Most of the useful decisions happen before a closing date, a distribution, or a year-end bonus is fixed. After the income is recognized, the return mostly reports the result. Accounting Solutions has helped Worcester County owners with tax planning since 1989, including years when a sale is the whole story. These are planning questions, not a promise that any one move will fit your facts.

1. Put the year's other income on paper before you pick a closing month. Wages, a pension, a required retirement distribution, and the gain all share one threshold.
2. Compare a December closing with a January closing using each year's published line. A short delay only helps when the next year's other income leaves room under that line.
3. Ask whether an installment sale spreads recognized gain across years, and whether each year's slice stays under that year's threshold. Interest, buyer risk, and the cash you need for the tax you still owe all belong in that conversation.
4. Do not assume a loss in one basket cancels a gain in another for the surtax. Model Part A, Part B, and Part C separately, then add only the positive parts.
5. If you are a nonresident seller with Massachusetts-source income, plan on Form 1-NR/PY when the threshold is crossed, even if a composite return is also filed.
6. Set aside cash for the regular tax and the surtax. A large gain can also change federal estimates. The federal 3.8% Net Investment Income Tax is a separate tax with its own rules, covered in the firm's Net Investment Income Tax guide.

Married couples sometimes ask whether two separate returns would keep each spouse under the line. The idea is common because the surtax is computed on a return. The statute uses one threshold, not a higher figure for a joint return.

Splitting income is not a casual election. Moving a home or a business interest between spouses can create its own tax. The Department of Revenue has not published a blanket approval of separate filing as a surtax workaround. Treat it as a question for your return, not as a default.

Moving out of Massachusetts before a sale is an even larger decision. Residency and domicile are fact-specific, Massachusetts source income can remain taxable after a move, and the Department of Revenue audits domicile changes. A calendar change of address is not a plan.

If a trust or estate may receive the proceeds, the surtax can apply on Form 2 when that entity's own taxable income exceeds the threshold. Who should recognize the income is part of trust and estate planning, and it needs to be settled before the sale, not after the closing statement arrives.

A Worcester County checklist before you sign

Bring these items to a planning meeting while the date is still movable:

• A draft closing statement or letter of intent with the expected month of sale.
• Year-to-date wages, retirement distributions, and any other signed contracts that will pay this year.
• The gain estimate after basis and selling costs, using the capital gains guide rather than the contract price alone.
• Whether any part of the gain is installment, escrowed, or contingent on a later earnout.
• Residency facts if you live outside Massachusetts for part of the year or the buyer entity files a composite return.
• The cash you will have left after the down payment, debts, and estimated federal and Massachusetts tax.

The threshold will move again. The Department of Revenue's inflation adjustment sets the next year's line. Recheck a multi-year installment when the new figure is posted. Do not lock a five-year schedule to the 2026 number of $1,107,750 and assume it still clears the line in 2028.

Rates that stack on the dollars over the line

People often hear "9%" and think the whole return is taxed at 9%. That is not how the Massachusetts 4% surtax works. The regular rate still applies under the rules for that part of income. The extra 4% applies only past the threshold.

For many Part B items, and for most long-term gains in Part C, the regular Massachusetts rate is 5%. Add 4% and the slice over the line is taxed at 9% by the state, before any federal tax. Short-term gains are different. Massachusetts already taxes many of them at 8.5%. On the slice over the line, the state rate can reach 12.5%. Collectibles follow their own higher computation. The surtax can still apply once total taxable income clears the line.

A second example keeps the pieces apart. Suppose 2026 taxable income is $1,200,000 after you have already computed the gain. The amount over $1,107,750 is $92,250. The surtax is $3,690. If that top slice is long-term gain, Massachusetts also charges its regular 5% on the gain. The 4% does not replace the 5%.

None of this is the federal bill. A large gain can raise federal income tax and change estimated-tax vouchers. For some filers it also brings in the 3.8% Net Investment Income Tax. Those are federal computations. They do not change the Massachusetts threshold. If you want the federal ordinary-income brackets beside this, use the firm's 2026 tax bracket guide.

What this article will not decide for you

A blog post can show the line, the forms, and the questions worth asking before a Worcester County closing. It cannot know your basis, your residency days, or what the buyer will actually pay. Accounting Solutions is a Worcester firm at 342 Shrewsbury Street. Daniel Whalen, CPA, is Executive Accountant. Sonal Asthana, NAEA, is a tax consultant on the team. Jay Walia is the firm's president. Those are different roles, and the right person depends on the question.

Bring the draft numbers to tax preparation once the year has closed, or to a planning conversation while the closing month can still move. The office line is 508-753-3532, weekdays from 9:00 a.m. to 5:00 p.m. Eastern. This article is general information from public Department of Revenue guidance as of June 1, 2026. It is not a return position for your sale.

Request a consultation before the closing date is set

Frequently asked questions

Does the Massachusetts 4% surtax apply to my entire income?

No. For 2026 it applies only to taxable income above $1,107,750. Income at or under that line is taxed under the regular Massachusetts rates and is not charged the extra 4%.

I do not earn a million dollars a year. Can a home or business sale still trigger it?

Yes. The surtax follows that year's taxable income. A single sale of a business, rental, or appreciated home can cross the threshold even when every other year stays well below it.

Is the surtax the same thing as capital gains tax?

No. Capital gains tax is the tax on profit from selling a capital asset, computed from basis, holding period, and the asset type. The surtax is an extra 4% on taxable income over the threshold, and a gain is only one item that can push you over. Read the capital gains guide for the gain math, then add the result to your other taxable income.

Do trusts and nonresidents pay the Massachusetts 4% surtax?

They can. Trusts and estates file Form 2. Nonresidents and part-year residents file Form 1-NR/PY when their taxable income exceeds the threshold, including nonresidents who also appear on a composite return.

Where should I confirm the threshold for my tax year?

Use the Massachusetts Department of Revenue's 4% surtax page. The 2026 threshold cited here is $1,107,750, from that page as updated June 1, 2026. Later years will show a new indexed amount.