The Massachusetts House advanced an $1.8 billion supplemental spending bill Wednesday, drawing primarily from revenue generated by the state’s millionaire’s surtax to fund transportation infrastructure and education programs. The legislation, introduced in the ninth month of fiscal year 2026, addresses mid-year budget gaps and includes provisions to delay implementation of federal tax code changes that state officials say would otherwise create significant revenue shortfalls.
The bill allocates $885 million to transportation projects, with $50 million earmarked specifically for snow and ice removal following severe January blizzards that dumped over 40 inches of snow across eastern Massachusetts. Education accounts will receive $417 million, including funding for special education, early education programs, and $20 million for the University of Massachusetts system and state colleges.
The spending package represents the latest example of how the state’s 4 percent surtax on annual income exceeding $1 million—approved by voters in November 2022—has reshaped Massachusetts’ fiscal landscape. The tax has generated substantially more revenue than initial projections, providing state lawmakers with additional funds for infrastructure and education investments.
Revenue from the millionaire’s tax exceeded $1.5 billion in fiscal year 2024, roughly 120 percent of original estimates. Projections for fiscal year 2026 anticipate $2.2 billion in surtax revenue, funding approximately 60 percent of the state’s education and transportation surpluses. The windfall has contributed to a state surplus reaching $6.8 billion as of the third quarter of fiscal year 2025, the highest level since 2008.
“This supplemental budget protects core services with surplus revenue, delaying harmful federal changes that would gut $442 million from our bottom line—essential for families relying on T and schools,” according to a summary of Governor Maura Healey’s administration proposal released in January 2026.
The $885 million transportation allocation primarily targets the Massachusetts Bay Transportation Authority, which faced a $600 million deficit in fiscal year 2025 due to lagging ridership recovery and mounting maintenance backlogs following the pandemic. The MBTA serves approximately 1.3 million riders weekly but has struggled with chronic infrastructure issues, including signal failures that caused an average of 450 daily delays in 2025.
The $50 million designated for snow and ice removal addresses costs incurred during January 2026 blizzards that paralyzed rail service, resulting in over 200 cancellations on the Orange Line alone. Total blizzard-related expenses for the transit system reached an estimated $120 million.
Beyond immediate spending allocations, the legislation includes tax policy provisions aimed at preventing revenue losses from federal tax code changes enacted under the One Big Beautiful Bill Act. Without delays to implementation, the Healey administration estimates Massachusetts would face a $442 million revenue shortfall in fiscal year 2026, followed by additional $250 million shortfalls in each of the subsequent two fiscal years.
The proposed delays would postpone conformity with certain federal tax provisions until fiscal year 2029, giving state lawmakers time to evaluate the long-term fiscal impact. Massachusetts typically conforms to federal tax code changes for administrative simplicity but has historically decoupled from specific provisions when state revenue interests diverge from federal policy.
The state previously decoupled from 2017 federal tax law changes related to pass-through deductions, a decision that preserved approximately $500 million in annual revenue. The current proposal follows a similar pattern, allowing the state to maintain its tax base while federal provisions phase in.
The House is also backing a proposal that could permanently separate state and federal tax codes if voters approve a November ballot question to reduce the state income tax rate from 5 percent to 4 percent. Such a reduction could decrease state revenue by $2 billion to $3 billion annually, according to analysis by the Massachusetts Budget and Policy Center.
“Decoupling ballot ties tax cut to independence from volatile federal policy, but risks $11 billion decade-long hole if growth slows; surtax has been a windfall, stabilizing post-pandemic budgets,” said Ben Forman, research director at the Massachusetts Budget and Policy Center.
The potential ballot measure represents a significant policy shift. Current law maintains Massachusetts’ 5 percent flat income tax rate, with the additional 4 percent surtax applying only to income exceeding $1 million. Taxpayers earning above that threshold currently face a combined 9 percent marginal rate on income over the million-dollar mark.
If voters approve the 4 percent flat rate, households with income exceeding $1 million could see tax savings exceeding $20,000 annually, though the surtax would remain in effect. The proposal has drawn support from some Republican legislators who view it as a check on state tax policy.
Representative Aaron Vega, a Holyoke Democrat who chairs the House Ways and Means Committee, defended the supplemental budget approach. “450 amendments reflect local needs, but millionaire’s tax ensures we fund blizzards and education without new taxes—surtax is performing beyond expectations,” Vega said in coverage by State Affairs Pro.
The millionaire’s tax revenue has exceeded projections largely due to strong capital gains performance and wage growth among high earners. Capital gains tax collections increased 25 percent year-over-year, contributing to the surplus alongside surtax revenue.
Critics of the surtax have raised concerns about potential out-migration of wealthy residents. IRS data from 2024 showed a net loss of approximately 600 high-income earners from Massachusetts, though the state’s overall population and tax base have remained stable.
“Relying on surtax chases away jobs; 4% ballot is voter check on overreach,” said Representative Marc Lombardo, a Republican critic of the current tax structure.
The $417 million allocated to education addresses costs in special education programs and early childhood education, areas that have faced funding pressures as enrollment and service needs have increased. The $20 million for state higher education institutions represents a smaller but targeted investment in the University of Massachusetts system and state colleges.
For the MBTA, the $885 million injection builds on $3.5 billion in funding from the 2024 Climate Bond and Fair Share Fund. Transit officials have indicated that while the supplemental funding helps address immediate needs, the system requires an additional $2 billion for long-term infrastructure improvements, including signal modernization and debt service.
“$885 million is critical, but signals and debt service need $2 billion more long-term—blizzards exposed vulnerabilities in a system 30 years behind,” said Ellen Roy Cheng of the MBTA Advisory Board.
The supplemental budget now moves to the Massachusetts Senate for consideration. Senate passage is expected in late March 2026, after which the legislation would proceed to Governor Healey for signature. Mid-year supplemental budgets are routine in Massachusetts state government, as lawmakers regularly allocate funding for needs that emerge after the initial annual budget is approved.
Taxpayers with income exceeding $1 million should review their withholding calculations for 2026, as the continued surtax affects quarterly estimated tax payments. Businesses with pass-through income or research and development credits will retain certain Massachusetts deductions through the delayed conformity provisions, though firms should prepare for potential compliance changes if permanent decoupling occurs.
The November ballot question on the income tax rate reduction will determine whether Massachusetts pursues a permanent separation from federal tax code conformity. That decision would affect approximately 4.5 million tax filers in the state and could reshape the relationship between state and federal tax policy for years to come.
Source: Massachusetts to delay implementation of some federal tax code changes | WWLP.com