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Massachusetts: New laws that affect your wallet in 2021

| Nov 20, 2020 | Uncategorized

The year 2021 brings plenty of change to the “Old Bay State.” From the new minimum wage to changes on state income tax, and much more, we’ll highlight them here.

Massachusetts minimum wage changes in 2021

The minimum wage is now $13.50 per hour for most employees and $5.55 for tipped employees and wait staff. That pay bump took effect on New Year’s Day, but balances with a slight decrease in Sunday/holiday pay, which decreases from 1.3 to 1.2 times an employee’s standard rate of pay, per the Massachusetts Department of Labor (DOL). 

According to the state, future changes to the minimum wage in the state look like this: 

  • In 2022: expect the minimum wage to increase again to $14.25/hr and $6.15 for tipped staff. Sunday/holiday pay will decrease again to 1.1 times an employee’s usual wage. 
  • In 2023: minimum wage will make its final jump — for now — to $15.00 hr and $6.75 for tipped staff. Sunday/holiday pay rates will be equal to every other day of the week. 

This year, we should also point out that employers must honor an extra holiday on June 19 — “Juneteenth” — which celebrates the end of slavery in the US. Juneteenth is now an official state holiday.

Currently, the minimum wage in Massachusetts is nearly twice that required by federal law ($7.25/hr). It will be interesting to see how these adjusted wages continue to affect the state economy over the next few years. Naturally, we can expect to pay more for meals at restaurants and retail purchases and more cash on hand for entry-level employees. But that’s not the only change coming to your wallet this year. 

Income tax drops from 5.05% to an even 5% for 2020

The state’s flat income tax rate dropped in 2020, from 5.05% in 2019 to an even 5%. This means that you’ll be paying slightly less state income tax on your 2020 earnings.

  • This is the final tax cut provided for under 2002 legislation that gradually reduced the income tax rate by 0.05% for each tax year (assuming certain revenue growths occurred statewide, which were adjusted for inflation).
  • The minimum income tax rate allowed is 5%. That means you’ll notice the decrease when filing 2020 taxes, but standard minimum state income tax won’t go any lower. 

Voters asked for this change 19 years ago. And it is excellent news for MA residents who will be paying the lowest income tax rate in decades. It’s an especially poignant point after the bizarre and unprecedented year that 2020 brought us.

And that’s not the only change on the horizon. With your increased wages and reduced state income taxes, 2021 will be a great time to invest in your favorite charities and community organizations. 

Changes to charitable contributions for tax year 2021

Starting this year — you won’t notice the change when filing your taxes for 2020 — Massachusetts has a new deduction for charitable donations.

  • The concept is based on federal charitable deduction standards as a starting point but will be available to MA taxpayers whether they itemize deductions or claim the standard deduction.
  • In other words, when filing your taxes for 2021, you’ll be able to deduct donations whether you itemize or not. 
  • If you’re looking to decrease your taxable income and make a difference in your community, make sure to donate to recognized 501c3 organizations and retain receipts. 

A law triggered the restoration of the state charitable deduction implemented nearly two decades ago. It required the income tax rate to fall to 5% before the charitable deduction could be restored. That happened in 2020, so in 2021 taxpayers can take advantage of this deduction once again.

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