Gov. Baker Says State Meets Milestones; Individual Tax Rate Drops Back to 5% in Jan.

Gov. Charlie Baker posed in front of a storefront in Haverhilll's Landmark Building during a visit to tout small business success in the city on Aug. 24, 2018. (WHAV News file photograph.)

The state’s individual income tax rate drops to a decades-low 5% starting next month.

Gov. Charlie Baker announced Friday the Commonwealth had achieved certain revenue milestones, allowing the rate to drop to the minimum allowed by state law.

“Starting in January, the income tax rate will be the lowest it has been in decades, allowing Massachusetts taxpayers to be able to keep more of their hard-earned money,” said Baker. “Our administration is working to keep the Commonwealth’s economy strong while maintaining fiscal discipline and now we are finally making happen what voters called for almost 20 years ago.”

The tax cut represents the conclusion of a process laid out in a 2002 state law to lower the income tax rate to 5% based on certain state revenue milestones. The law provides that for each tax year in which certain inflation-adjusted baseline revenue growth requirements are met, the income tax rate will be reduced by increments of .05 percentage points until the rate reaches 5%. The legislation replaced a tax rate reduction schedule that had passed by ballot initiative in November 2000.

The current state budget accounted for the income tax rate change, which is projected to reduce tax revenue by approximately $88 million this fiscal year and approximately $185 million next year.

By statute, the state charitable deduction will also be re-instituted effective the following tax year, or Jan. 1, 2021.

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