These 3 States Passed Major Tax Incentives in 2023 — Here’s How Residents of Each Benefit

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This has been a busy decade for tax reform in the United States. Since 2021, at least 25 states have cut individual income tax rates, according to the Tax Foundation, while 13 have reduced corporate income tax rates and two have lowered sales tax rates. In 2023, eight states adopted individual income tax rate reductions. That’s on top of several other states that kicked in tax cuts that were approved in prior years.

Many tax cuts have been put in place to help taxpayers and businesses deal with high prices and ongoing post-COVID financial challenges. While most involve straight reductions in tax rates, a few reforms passed in 2023 involve tax credits and incentives.

Here’s a look at three states that approved major tax reforms last year.

Massachusetts

In October, Massachusetts Gov. Maura Healey signed into law the state’s first tax cuts in more than 20 years. Here are some of the provisions, according to a press release from Mass.gov:

• Child and Family Tax Credit: This provision eliminated the two-dependent cap and increased the 2023 credit to $310 from $180 per dependent child, disabled adult or senior. Starting in 2024, the credit is $440 on a permanent basis.
• Earned Income Tax Credit: Increased to 40% from 30% of the federal credit.
• Short-Term Capital Gains: The rate was reduced to 8.5% from 12%.

Pennsylvania

In December, Pennsylvania Gov. Josh Shapiro signed into law a major expansion of the state’s Child and Dependent Care Enhancement Tax Credit designed to help working families with child care costs. Under the new law, taxpayers will now get their federal Child Tax Credit matched 100%.

According to the Pennsylvania Department of Revenue, the credit ranges from $600 to $2,100 and takes into account an applicant’s income level and number of dependents. That’s up from a maximum of $1,200 previously. Here are some of the highlights:

• The maximum credit will be $1,050 (one child) or $2,100 (two or more children).
• The credit cap phases down as income levels increase.
• The minimum credit will be $600 (one child) or $1,200 (two or more children).

Virginia

The 2023 Virginia General Assembly passed a law giving taxpayers with a tax liability a rebate of up to $200 for individual filers and up to $400 for joint filers, according to the state’s Department of Taxation. To get the rebate, eligible taxpayers must have filed their 2022 individual income tax return by Nov. 1, 2023.

If you took the standard deduction, you won’t need to take any action on your federal return related to the rebate. If you itemized your deductions, you might be required to report the rebate amount you received as income on your federal return, depending on your circumstances.

You can check your eligibility using the Department’s rebate lookup tool.

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