Massachusetts charges an extra 4% surtax — the “millionaires tax” — on the portion of your taxable income that exceeds $1,107,750 in 2026. On top of the flat 5% state rate, that means income above the line is taxed at 9%. The key thing most people get wrong: it’s marginal, not a cliff. Only the dollars over the threshold get hit, not your whole income. The real danger for retirees isn’t a high salary — it’s a one-time spike: selling a home, a large Roth conversion, an IRA lump sum, or a business sale that pushes a single year over the line.
From the Retirement Tax Planning hub — Evergreen Wealth Management — proactive year-round tax planning for retirees: Roth conversions, withdrawal sequencing, and Medicare IRMAA strategy.
What exactly is the Massachusetts millionaires tax?
It’s a 4% surtax on the slice of your annual taxable income above an inflation-adjusted threshold, added on top of the standard 5% rate. Massachusetts voters approved it in November 2022, and it took effect for the 2023 tax year. Because it’s indexed for inflation, the threshold climbs every year:
| Tax year | Surtax threshold |
|---|---|
| 2023 | $1,000,000 |
| 2024 | $1,053,750 |
| 2025 | $1,083,150 |
| 2026 | $1,107,750 |
The 4% is in addition to the 5% flat tax, so the effective top rate on income above the threshold is 9%. For a state that built its reputation on a simple flat tax, that’s a meaningful jump — and it lands almost entirely on people who have a single big income event, not on steady high earners alone.
Is the surtax a cliff or marginal?
It’s marginal. Only the income above the threshold is taxed at the extra 4% — crossing the line by a dollar does not retroactively tax your whole income. This is the opposite of the Massachusetts estate tax, which really is a cliff at $2 million. People conflate the two constantly, so it’s worth being precise.
Here’s the math. Say a Boston couple has $1,300,000 of taxable income in 2026 — most of it a one-time capital gain. The amount over the threshold is $1,300,000 − $1,107,750 = $192,250. The surtax is 4% × $192,250 = $7,690. That $7,690 is the entire extra cost of the surtax. Annoying, but not catastrophic — and far smaller than the panic the “millionaires tax” label tends to provoke.
What income counts toward the threshold?
Nearly all of it. Massachusetts adds together your Part A income (short-term capital gains, gains on collectibles, and most interest and dividends), Part B income (wages, pensions, IRA and 401(k) withdrawals, Roth conversion amounts, and most other income), and Part C income (long-term capital gains). The sum is what’s measured against the threshold. A few things to know:
- Retirement account withdrawals count. A large traditional IRA or 401(k) distribution — including a Roth conversion — is ordinary income in Massachusetts and feeds straight into the surtax calculation.
- Home-sale gains count. The taxable portion of a home sale (after the federal $250,000 single / $500,000 married exclusion) is included. There is no special surtax exemption for selling your house.
- Tax-exempt interest does not count. Interest on U.S. Treasury and Massachusetts municipal bonds is excluded, because it’s already excluded from Massachusetts taxable income.
- You generally can’t escape with separate filing. Starting in 2024, couples who file jointly federally must file jointly in Massachusetts — there’s no “married filing separately” workaround to split income under the threshold.
How does a home sale trigger it?
This is the one that ambushes longtime Massachusetts homeowners. Consider a couple who bought a home in Newton decades ago for $400,000 and sells in 2026 for $2,400,000. Their gain is roughly $2,000,000. After the $500,000 married exclusion, $1,500,000 is taxable. Even with no other income, that single sale blows past the $1,107,750 threshold by $392,250, producing a surtax of about $15,690 — on top of the regular 5% state tax and federal capital gains tax on the gain.
The lesson isn’t “don’t sell.” It’s that a big appreciated asset and the surtax need to be planned together, ideally before you sign anything. Sometimes an installment sale that spreads the gain across two or more tax years can keep each year under the line — Massachusetts taxes installment income as it’s received.
How do Roth conversions interact with the surtax?
Every dollar you convert from a traditional IRA to a Roth is taxable income in Massachusetts, so a large conversion can push you over the threshold in a hurry. Suppose a retiree wants to convert $1,200,000 over the next few years to shrink future required minimum distributions. Doing it all in one year, on top of $250,000 of other income, creates roughly $1,450,000 of taxable income — about $342,000 over the line, for a surtax near $13,700.
Spread that same $1,200,000 across four years at $300,000 per year, and — combined with $250,000 of other income — each year’s $550,000 stays comfortably under the threshold, avoiding the surtax entirely. The conversion still makes sense; the timing is what saves the 4%. If you’re weighing a conversion strategy, it’s worth reading our deeper guide on Roth IRA conversions in retirement alongside this.
How do you plan to stay under the line?
The surtax rewards spreading income out and bunching deductions. A few strategies that work for households in the $1–5M range:
- Spread the big event. Multi-year Roth conversions, installment sales of a business or property, and staggered stock-option exercises all keep single-year taxable income under the threshold.
- Bunch charitable giving into the spike year. A donor-advised fund contribution or a qualified charitable distribution (QCD) from an IRA in the same year as a big gain can pull taxable income back below the line.
- Favor tax-exempt interest in a high-income year. Treasury and Massachusetts municipal bond interest is excluded from the surtax base.
- Coordinate spouses and timing. Because joint federal filers must file jointly in Massachusetts, the planning has to happen at the household level and before year-end — not at tax time.
How a flat fee fits this kind of planning
Surtax planning is the kind of work that pays for itself in a single good decision — but it shouldn’t cost more just because your portfolio is large. A traditional advisor charging 1% of assets under management would bill a $3,000,000 household about $30,000 a year, whether or not they do anything about the surtax. At Evergreen Wealth Management, we charge a flat monthly fee regardless of portfolio size. The fee doesn’t balloon because you sold a home or ran a large conversion; it stays the same while the planning around those events gets more valuable.
That flat-fee, fee-only fiduciary structure is the whole point: our advice on whether and how to spread a million-dollar conversion isn’t colored by what it does to an asset-based bill. You can see how this plays out in real client scenarios or read more about how we work.
Frequently Asked Questions
Does the 4% surtax apply to my entire income once I cross $1,107,750?
No. The surtax is marginal — it applies only to the portion of taxable income above the threshold. If your 2026 taxable income is $1,200,000, the extra 4% applies to roughly $92,250 (the amount over $1,107,750), costing about $3,690, not 4% of the whole $1,200,000.
Is the surtax threshold the same every year?
No. It’s indexed for inflation and rises annually. It started at $1,000,000 in 2023 and reached $1,107,750 for the 2026 tax year. Always confirm the current year’s figure before doing surtax math.
Can a flat-fee advisor really help with surtax timing?
Yes — and arguably better, because the advice isn’t tied to your asset balance. At Evergreen Wealth Management, our flat monthly fee means we map out multi-year Roth conversions, home sales, and business exits to keep each year under the line without our compensation changing based on the outcome. As a fee-only fiduciary firm in Boston, we’re paid the same a flat monthly fee whether your portfolio is $1M or $5M.
A large retirement distribution can be exactly that kind of one big year. If you hold appreciated company stock in a 401(k), the basis portion of a net unrealized appreciation (NUA) distribution lands as ordinary income in a single year and can push you over the surtax threshold, so it belongs on the same timing map as a home sale or business exit.
Timing is only half the surtax problem; the other half is what you can deliberately do to the gain side of the ledger. Realizing losses in the same year as a large sale is one of the few clean levers available, and whether tax-loss harvesting is actually worth it depends heavily on whether you have a one-time income event like this to offset.
Selling a longtime family home is one of the most common ways Massachusetts retirees cross the surtax line by accident. We walk through a full Newton example, including basis, the $500,000 exclusion and IRMAA, in what you really owe in capital gains tax when selling a home in Massachusetts.
The bottom line
The Massachusetts millionaires tax surtax is rarely a problem for steady income — it’s a problem for the one big year. If you have a home sale, business exit, or large conversion on the horizon, a little timing can save you thousands. Get in touch to talk through your specific situation before the event, not after.
Nick Stevens, CFP® is the founder of Evergreen Wealth Management in Boston, a flat-fee financial planning and investment management firm. Evergreen charges a fixed monthly fee regardless of portfolio size. Learn more about how we work at our fee structure page or get in touch at contact us.