Tax Insight

Massachusetts requires Sections 174A, 168(n), and 163(j) modifications, extends PTET benefits to “Millionaire’s Tax”

Insight
5 minute read
June 23, 2026

What happened?

Massachusetts’ supplemental budget enacted on June 12 requires an addback for certain amounts deducted under P.L. 119-21 (the “OBBBA”), including for domestic R&E in 2025, the enhanced interest deduction in 2025 and 2026 and the qualified production property deduction in 2025 and 2026. Further, the legislation will allow each of these deductions for future years unless a proposed November 2026 ballot initiative to lower the personal income tax rate passes. However, on June 18, the Massachusetts Supreme Judicial Court issued an opinion enjoining the Secretary of the Commonwealth from placing the initiative on the ballot. As a result, these modifications will not apply to future years.

The legislation also expands the pass-through entity tax (PTET) to account for the state’s "Millionaire’s Tax," effective for tax years beginning in 2026, in addition to other changes.

[H. 5470 (FY 26 supplemental budget), enacted 6/12/2026; Finfer v. Attorney General et al., Mass., No. SJC-13885, opinion 6/18/2026]

Why is it relevant?

With this legislation and the court’s decision, Massachusetts is allowing future conformity to some of the OBBBA’s business tax benefits. The state also is significantly expanding the PTET benefit (thereby enhancing federal deductibility) to lessen the impact of the “Millionaire’s Tax” on high earners.

Actions to consider

Taxpayers should evaluate the potential impact of these conformity changes on their 2025 return preparation, remaining 2025 and 2026 estimated payments, and financial statement tax provision calculations. Businesses also should model the impact of Massachusetts’ future conformity to these OBBBA provisions in light of the court decision, while monitoring for any further legislative or legal developments that could affect the state’s conformity posture.

For more details, read the full Tax Insight linked below.