Charles R. Kennedy, CPA, MBA
Vice President & Director of Tax Services

Gov. Maura Healey on July 28 signed the FY2025 state budget, approving several measures that will impact taxpayers in the commonwealth. The budget, which includes sweeping policy changes, totaled $57.8 billion, representing a 3.5% increase in state spending compared to last year’s budget. 

The budget does not include any new tax increases and does not draw from the state’s $9 billion “rainy day fund.” However, although the budget does not introduce new taxes, it allocates approximately $1.3 billion in new revenue anticipated from the surtax proposal approved by voters in 2022. This allocation represents an increase of about $300 million over last year’s spending.

Of particular interest to taxpayers in the FY25 budget are the following items:

• Tax amnesty program: The bill introduces a one-time tax amnesty initiative, providing a two-month window for individuals and corporations to file past-due tax returns. The specifics of the program, including the eligible period, will be determined by the Commissioner of the Department of Revenue (DOR). The administration estimates that this program could generate approximately $75 million in revenue. 
• Internal Revenue Code (IRC) conformity: This section updates the state’s personal income tax laws to conform with the IRS code effective January 1, 2024. While Massachusetts corporate taxes are subject to rolling conformity with federal taxes – meaning when federal corporate tax rules change, the corresponding state tax rules automatically follow – personal state income taxes do not automatically follow federal rules. The Legislature must act to bring Massachusetts individual tax rules into conformance with the federal tax code. The FY25 budget establishes conformity as of January 1, 2024.
• Joint filer requirement: This section exempts low-income taxpayers, who would not otherwise have to file a personal income tax return, from the recently enacted “consistent filing requirement,” which mandates married couples to file jointly for state purposes if they file jointly at the federal level.
• Repeal of deduction of interest from savings in Massachusetts banks: Effective for taxable years beginning on January 1, 2024, this section repeals the deduction of interest from savings in banks within the commonwealth. Historically, Massachusetts taxpayers have been able to deduct $100 per individual ($200 for married couples filing jointly) of the amount of interest they have earned from bank accounts at Bay State institutions. That deduction was repealed.
• Sales tax exemptions for tax-exempt organization publications: The budget repeals the sales tax exemption for publications of tax-exempt organizations.
• Septic tank tax credit clarification: The budget includes language that makes several technical amendments to the septic tank tax credit. 

Most notable among the broad policy changes and associated spending contained in the budget are provisions for free community college for all Massachusetts residents, creation of a digital online lottery, and free rides on systems operated by regional transit authorities.

The governor signed nearly all of the budget the Legislature sent her, approving all but three of the 261 policy proposals lawmakers added to it. But she also vetoed 60 separate line items, accounting for $317 million, in spending.

If you have questions about how the tax-related items in the state’s FY25 budget may affect you or your business, contact your G.T. Reilly tax advisor.