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The ‘millionaires tax’ passed. What does that mean for your taxes?

Income doesn’t start counting toward the “millionaire’s tax” until Jan. 1, 2023. Here’s what you can do before and after then to minimize its impact on you.

A homemade Yes on 1 sign is seen outside of a home on a residential street in Malden on Nov. 7, 2022.Jessica Rinaldi/Globe Staff

On Tuesday, Massachusetts answered Question 1 in the affirmative, passing a progressive income tax on all earnings over $1 million.

Now, another question blooms: How will this affect you come tax season?

Here’s how the new tax works: If your annual taxable income (comprising salaries and wages, some retirement withdrawals, capital gains on the sales of home and businesses, etc) is more than $1 million, you’ll pay the existing flat 5 percent rate on the first million, and a new 9 percent rate on all income in excess of that.

Let’s say you bring home $1.5 million in a year. You would be taxed 5 percent on the first million ($50,000) plus 9 percent on the rest ($45,000) for a total of $95,000 in state taxes (up from $75,000 under the current 5 percent rate).

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Still confused? Try our calculator to see how your taxes would (or would not) change.

Of note: This does not apply to income earned in 2022, so you won’t need to do anything differently on your tax forms this coming April. However, the clock on annual income for taxes to be paid in 2024 starts on Jan. 1, 2023, so there are still some things to consider before the new year if you’re looking to avoid being hit by the surcharge.

“You might want to consider accelerating income into 2022,” said Laura O’Brien, a tax partner at LGA, LLP in Woburn and Chestnut Hill. If you have a big bonus coming up at work, are considering selling your home, or are weighing whether or not to cash in a winning stock, you may want to try to get that done before the end of 2022 so that your profits won’t be impacted by the new tax.

Another option is “harvesting tax losses in your portfolio,” said Shannon Ouellette, a wealth management advisor at Northwestern Mutual Financial Network in Gardner. This is where you sell a losing asset, like a stock that’s down, and use the loss to offset the taxable portion of any capital gains. If your gains don’t exceed your losses in a given year, the loss is “carried over” to future years.

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This strategy can help chisel down your taxable income, keeping it below the $1 million threshold once Question 1 goes into effect. It is particularly effective now, said Ouellette, with the unstable stock market.

“It’s like the lemonade out of lemons, or the silver lining of the market volatility,” said Ouellette. “It stinks to see the portfolio going down, but let’s at least create a tax benefit from all that negativity that we can use going forward.”

If you’re planning on selling a business next year, it might be a good idea to consider getting paid in installments rather than a lump sum. Massachusetts requires you to apply to the Department of Revenue for an installment sale, so it’s not a foolproof solution, but it could be worth exploring, said Ouellette.

"Yes on 1" pins lie on a table in Somerville on Nov. 5, 2022.John Tlumacki/Globe Staff

If you’re married, another potential option may be to file separately from your spouse in order to stay below the $1 million threshold. For example, if you and your spouse bring in a combined $1.5 million next year, under Question 1, you would pay $95,000 in state taxes if you filed jointly. However, if you filed separately as each earning $750,000, you would each pay $37,500, saving you a total of $20,000 in taxes compared with the new law.

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There are essentially no downsides to a married couple filing separately on Massachusetts taxes and jointly on federal taxes, says Jeffrey Levine, a partner at Newton accounting firm Alkon & Levine.

“Almost all the deductions that you would get jointly are just split in half in a separate return,” he said. “If you have the ability to file separately, and even if it just brings one of you under [$1 million], that may be some savings.”

To further reduce your taxable income, you can set up a donor-advised fund — a lump sum, no longer taxed, that you can pay out to charities over time. Deposits are irrevocable, “but you control which charities get it and when, and it can continue to grow and accumulate,” said Ouellette.

There is also the more drastic option of moving to — or spending more than half the year in — a state with lower taxes, an outcome many business leaders fear will be the long-term result of Question 1.

“They could think about where they might be 184 days of the year,” said Levine. “If they have the luxury right now of a second place to call home, they could structure their days outside of Massachusetts.”


Dana Gerber can be reached at dana.gerber@globe.com. Follow her @danagerber6.