Massachusetts income tax to be cut a bit on Jan. 1
The Massachusetts income tax will drop slightly in the new year — to 5.20 percent from the current 5.25 percent — because of stronger-than-anticipated growth in revenues, state officials said Wednesday.
The tax rate will automatically drop on Jan. 1, Revenue Commissioner Amy Pitter said.
In a letter sent Wednesday to Secretary of Administration and Finance Glen Shor, Pitter said revenue growth met a number of thresholds over the past several months required to trigger the automatic reduction. Tax collections in November were 10.6 percent higher than in the same month a year ago. And through the first five months of the fiscal year, total revenue has grown $766 million, or 9.7 percent.
The growth has exceeded the state's own benchmarks by $359 million so far in the year.
Massachusetts voters approved a ballot question in 2000 to gradually lower the income tax rate from 5.95 percent to 5 percent. In 2002, the Legislature froze the rate at 5.3 percent, but also added a mechanism that would allow the rate to fall in increments of 0.05 percent if growth in annual revenues meets certain benchmarks.
The rate was reduced from 5.30 to 5.25 percent on Jan. 1, 2012.
The latest cut won't prove much of a windfall for the typical taxpayer. For example, a married couple filing jointly who own a home, have two children under 12 and $100,000 in income would save an estimated $39 from a 0.05 percent cut in the income tax rate, according to the revenue department.
The reduction could have an impact on state finances, however. Pitter estimates that the state will lose about $65 million in revenue over the final six months of the fiscal year that runs through July 1.
The administration and lawmakers had been counting on higher-than-expected revenue growth to offset the loss of revenue that will result from the recent repeal of a tax on computer and software services. The so-called "tech tax" was expected to generate $161 million in the current fiscal year, but was repealed after strong opposition from business groups.
"We're growing, and that's good news," Gov. Deval Patrick told reporters when asked Wednesday about next year's tax cut.
But Patrick also noted that the formula for determining the automatic tax cut does not take into account the sharp drop that occurred in revenues during prior years because of the recession.