Calculating Income Subject to the 4% Surtax What income is subject to the 4% surtax? Only the portion of a taxpayer’s taxable income that exceeds the surtax threshold for a tax year will be subject to the 4% surtax. The surtax threshold for: Tax year 2026 is $1,107,750 Tax year 2025 is $1,083,150 Tax year 2024 is $1,053,750 Tax year 2023 is $1,000,000. How do I determine what portion of my taxable income is subject to the 4% surtax? Once you determine your taxable income for a tax year, you subtract the amount of the surtax threshold for that year. The difference between taxable income and the surtax threshold is the amount subject to the 4% surtax. You must multiply the difference by 4% to determine the additional tax due and report that amount on your return. How is taxable income calculated for purposes of determining the 4% surtax? A taxpayer’s taxable income for determining the 4% surtax is the sum of a taxpayer’s Part A, Part B, and Part C taxable income for a tax year. Part A income consists of short-term capital gains, long-term gains on collectibles, and interest and dividends other than Massachusetts bank interest. Part B income consists of all other taxable income not included in Part A or Part C. Part C income consists of long-term capital gains. In adding up the sum of Part A, Part B, and Part C, any Part that is negative is treated as 0. In other words, only Parts with positive taxable income amounts are added together. You can find more information on income tax computation and the various parts of taxable income on the Department of Revenue (DOR) website. Is a tax item from Part A, Part B, or Part C permitted to reduce taxable income in another part in calculating taxable income to determine the 4% surtax? A tax item from Part A, Part B, or Part C can reduce taxable income in another part only to the same extent it is otherwise permitted under the relevant statute. For example, under chapter 62 of the M.G.L., excess Part B losses may be deducted against capital gains attributable to a taxpayer’s trade or business when determining Part A or Part C taxable income. However, once taxable income in each part is determined, a negative amount in one part cannot be used to reduce taxable income in another part when determining the 4% surtax. Is any income excluded from taxable income when determining the application of the 4% surtax? Where income is otherwise included in a taxpayer’s taxable income, it is included for purposes of determining the 4% surtax. Likewise, income that is otherwise excluded from a taxpayer’s taxable income is excluded when determining the 4% surtax. Income that is exempt from Massachusetts tax, such as interest on federal and Massachusetts obligations, is not included in the 4% surtax determination. Is gain on the sale of a personal residence included in the calculation of taxable income when determining the application of the 4% surtax? To the extent that income from the sale of a personal residence is otherwise subject to the personal income tax, it is also included in the calculation of annual taxable income when determining the 4% surtax. There is no exclusion from the 4% surtax for income from the sale of a personal residence that is otherwise included in annual taxable income. Is income from an installment sale included in the calculation of taxable income when determining the application of the 4% surtax? Income from installment sales is taken into account when determining the 4% surtax to the extent that it is included in Massachusetts income under the installment sale rules set out in M.G.L., c. 62, § 63. Do married couples have to file jointly in Massachusetts if they are subject to the 4% surtax? Starting with tax year 2024, all married couples that file jointly for federal purposes are required to file jointly in Massachusetts, unless an exception applies. See, See M.G.L. c. 62, § 4(d); 62C, § 6(a)(2); and 830 CMR 62.5A.1(11). There is no exception for married couples that are subject to the 4% surtax, even if they have different a residency status or residency period in Massachusetts. DOR has posted guidance for married taxpayers subject to the surtax with different residency or periods of residency for tax year 2024.