How Much Is Estate Tax in Massachusetts?

The Massachusetts estate tax is a state-level levy imposed on the value of a deceased individual’s assets before they are distributed to beneficiaries. This tax is distinct from any federal estate tax and applies to estates exceeding a certain value. Its primary purpose is to generate revenue for the state, impacting a deceased person’s wealth before it passes to their heirs. The tax applies to Massachusetts residents and non-residents owning real estate or tangible personal property located within the state.

Massachusetts Estate Tax Thresholds and Rates

For individuals who pass away on or after January 1, 2023, a Massachusetts estate tax return (Form M-706) is required if the gross estate, combined with any adjusted taxable gifts, exceeds $2,000,000. Prior to this date, the threshold was $1,000,000, and this increased threshold provides relief to more estates. The state implements a progressive tax rate structure, with rates ranging from 7.2% to 16% for estates exceeding $2 million. Estates valued over $10 million can face rates as high as 16%.

A significant aspect of the Massachusetts estate tax is that if an estate’s value surpasses the $2,000,000 threshold, the tax is applied to the entire taxable estate, not just the amount exceeding the threshold. This is often referred to as a “cliff effect.” To mitigate this, Massachusetts provides a non-refundable estate tax credit of $99,600. This credit effectively zeroes out the tax due on the first $2 million of an estate’s value, ensuring only the portion exceeding $2 million is subject to taxation.

Unlike the federal estate tax exemption, the Massachusetts exemption is not adjusted annually for inflation, meaning the $2 million threshold remains fixed unless legislative changes occur. The Massachusetts exemption is also not “portable” between spouses, meaning any unused portion cannot be transferred to a surviving spouse.

What Makes Up the Taxable Estate

The “gross estate” includes the total value of all property and assets the decedent owned at the time of death, regardless of location. Common assets are real estate (both in and out of Massachusetts), bank accounts, investment accounts (such as stocks and bonds), retirement accounts (like IRAs, 401(k)s, and 403(b)s), and business interests. Life insurance proceeds are also included if the decedent owned the policy, along with annuities and personal property such as vehicles, jewelry, and other valuables.

The gross estate also includes certain property interests transferred during the decedent’s lifetime, particularly those made within three years of death if they exceed specific annual exclusion amounts. For Massachusetts residents, real estate and tangible personal property located outside of Massachusetts are generally excluded from the gross estate for tax calculation purposes.

After determining the gross estate, certain deductions are allowed to arrive at the “taxable estate.” These deductions reduce the overall value subject to tax. Common deductions include funeral expenses, administration expenses incurred in settling the estate (such as legal and accounting fees), and debts owed by the decedent.

Massachusetts also provides an unlimited marital deduction, allowing an individual to leave an unlimited amount of assets to a surviving spouse without incurring state estate tax at the first spouse’s death. This deduction postpones the tax until the surviving spouse’s death, at which point all combined assets will be subject to the $2 million exemption. Additionally, gifts made to qualified charitable organizations are fully deductible, which can significantly reduce the taxable estate.

Calculating the Massachusetts Estate Tax Liability

Once the taxable estate is determined, the Massachusetts estate tax liability is calculated using a graduated rate schedule. For estates exceeding $2 million, the tax is computed on the entire value, with the $99,600 credit effectively exempting the initial $2 million.

A unique aspect of the Massachusetts estate tax calculation involves a credit for state death taxes. The Massachusetts estate tax is derived from the federal credit for state death taxes that existed under federal law as of December 31, 2000. For Massachusetts residents who owned real estate or tangible personal property outside of the state, the Massachusetts estate tax is reduced proportionately based on the value of those out-of-state assets relative to the entire federal gross estate. The specific calculation involves using the federal rate table to compute a hypothetical credit for state death taxes, then applying adjustments for out-of-state property and subtracting the $99,600 credit.

The federal estate tax also allows a credit for state estate taxes paid, which can help offset the overall tax burden for estates subject to both federal and state taxes. Accurate calculation often requires professional assistance due to the interplay between state and federal tax provisions.

Filing Requirements and Payment Procedures

The Massachusetts Estate Tax Return, Form M-706, must be filed, and any tax due paid, within nine months after the decedent’s date of death. This deadline applies to both residents of Massachusetts and non-residents who own real estate or tangible personal property within the state and whose gross estate exceeds the $2 million filing threshold. Even if no tax is ultimately due after deductions and credits, a return may still be required if the gross estate exceeds the threshold.

If the personal representative or executor of the estate needs more time to file the return, an extension of time to file can be requested using Form M-4768. An automatic six-month extension to file is granted if at least 80% of the finally determined tax is paid by the original due date. However, an extension of time to file does not extend the deadline for paying the tax; interest will still accrue on any unpaid amounts from the original due date. For an extension of time to pay, a separate request must be submitted, typically demonstrating undue hardship. An extension to pay may be granted for a reasonable period, potentially up to three years from the original due date, though interest will still apply.

Payments for the Massachusetts estate tax can be made electronically through MassTaxConnect, the Massachusetts Department of Revenue’s online portal. Options include electronic funds transfer (EFT) directly from a checking or savings account, or by credit or debit card, although card payments typically incur a convenience fee. Alternatively, payment can be made by mailing a check or money order, made payable to the Commonwealth of Massachusetts, along with the necessary return or voucher. The decedent’s full name and Social Security number should be included in the memo portion of the check to ensure proper crediting.