Taxpayers in Massachusetts are in line to receive nearly $3 billion in tax refunds this fall. The money comes as the commonwealth saw its 2022 revenue surge 20.5% above the previous year’s level.
“Massachusetts has seen unprecedented surplus revenue,” says Eileen McAnneny, president of the Massachusetts Taxpayers Foundation. An analysis by the public policy organization found the current surplus is the largest in recent history, far exceeding the $1 billion surplus the commonwealth collected in 2019.
This year’s extra money triggered chapter 62F of state law, and the government is now required to send $2.941 billion back to its taxpayers. While some details are still being hammered out, the funds are set to be distributed to those who had a state income tax liability in 2021.
Massachusetts Tax Refund Details
Although not all the details are known yet, a clearer picture is coming into focus regarding who will be getting a refund from Massachusetts and when the money will be arriving.
Who Is Getting a Massachusetts Tax Refund
Under chapter 62F, excess revenue—which includes money received from sales, income and other taxes—must be credited back to taxpayers. To do that, Massachusetts has settled on issuing payments this fall to those who had an income tax liability for 2021.
“That point is controversial,” according to McAnneny. She says some legislators would have liked to find a method to redistribute money in a way that would be more beneficial to lower-income residents.
However, section 6 of the law states: “The credit shall be applied to the then current personal income tax liability of all taxpayers on a proportional basis to the personal income tax liability incurred by all taxpayers in the immediately preceding taxable year.”
In other words, a 2022 surplus needs to be sent back to taxpayers based on how much they paid in income taxes in 2021.
How to Determine Your Massachusetts Tax Refund Amount
Eligible taxpayers are expected to receive an amount that is equal to 13% of their 2021 tax liability, minus any refundable tax credits they received, such as the earned income tax credit and senior circuit breaker credit.
Massachusetts has an income tax rate of 5%, and a single person earning $70,000 annually could expect to pay $3,280 in state income taxes. Assuming they received no refundable credits for 2021, their refund would be $426.
A married couple earning $150,000 could pay $7,060 in state income taxes. In that case, they would receive a $918 refund so long as they did not have any refundable credits in 2021.
To determine how big your Massachusetts tax refund may be, you can use the online refund estimator provided by the Executive Office for Administration and Finance.
When Refunds Will Arrive
The details about when refunds will be issued is still hazy. The commonwealth notes that more details will be available in November 2022, which is also when it expects payments to begin being issued.
Refunds will be sent via direct deposit to bank accounts listed on 2021 state tax returns. If that bank account is closed or if one was not provided by a taxpayer, payment will be made by check.
While taxpayers can’t update their direct deposit information for the refund, they can change their address through the MassTaxConnect website.
Those who haven’t filed a 2021 Massachusetts tax return have until Oct.ober 17, 2022 to do so to be eligible for the surplus credit. That is a hard deadline: Refunds will not be issued for returns filed after that time, a representative of the Executive Office for Administration and Finance confirmed to Forbes Advisor in an email.
What Is 62F?
Chapter 62F was added to state law by Massachusetts voters in 1986. It requires that taxpayers be issued a credit should government revenues exceed an annual cap that is linked to wage and salary growth.
“My speculation is that eliminating taxes was in the air [in 1986],” says Luke Stein, a finance professor at Babson College in Wellesley, Massachusetts. He notes that year was when then-President Ronald Reagan ushered through his Tax Reform Act, and there was a notable anti-tax sentiment nationwide.
One year later, in 1987, Chapter 62F was triggered for the first time. But it took35 years to come into play again.
For fiscal year 2022, the 62F formula allowed Massachusetts to collect approximately $38.87 billion. However, actual revenues were more than $41.81 billion, according to State Auditor Suzanne Bump.
Will More Refunds Be Coming Next Year?
Given the significant revenue surplus this year, Massachusetts taxpayers may wonder if more refunds are on the horizon for 2023. Some observers say that doesn’t seem likely.
“I don’t think we’re going to be in this same situation a year from now,” Stein says. He points to three things that could have helped boost 2022 revenues, but might not be a factor in the future:
- Increased sales tax collection due to pandemic-related spending and rising prices, particularly for cars
- Robust gains in the stock market last year which provided some people income, but didn’t contribute to the wage growth used in the 62F formula
- A change in Massachusetts law regarding how taxes from pass-through businesses, such as sole proprietorships and partnerships, are collected.
That last factor may be the most significant. Under the recent law change, taxes from pass-through businesses were collected in fiscal year 2022, but they will be offset by credits that will presumably be claimed next year.
“The change in the taxation of so-called pass-through business entities which just took effect last year, generated $2.25 billion in revenue, much of which has yet to be claimed in the form of personal income tax credits and deductions by the business owners,” noted Bump in a press release.
When those credits are claimed next year, it might have a dampening effect on state revenues and rule out the possibility another surplus will trigger chapter 62F.
As for whether lawmakers should consider policy changes to reduce the possibility of future surpluses, McAnneny advises a wait-and-see approach. “It probably warrants a review of our tax policy if it happens multiple years,” she says.
For now, though, Massachusetts taxpayers join residents in other states across the country who have gotten a little extra money in their bank accounts thanks to state government stimulus checks, rebates and refunds.
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