More than 565,000 families in Massachusetts will benefit next year from an expanded tax credit of $440 for children, disabled adults and seniors under a compromise tax break package that top Democratic lawmakers announced Tuesday.

The state's House of Representatives is expected to vote Wednesday on the bill, with the Senate following suit and sending the bill to Gov. Maura Healey’s desk Thursday.

The deal, the product of about three months of closed-door talks between the two chambers, includes major changes to the estate tax, a cut to the tax rate on short-term capital gains, and breaks for renters and seniors. Lawmakers expect it to cost the state $561 million this year, and grow to $1 billion in the 2027 fiscal year, when it is fully phased in.

“This tax relief bill will help alleviate many, many financial burdens that our families, our seniors, our renters face and put real dollars in their pockets,” Senate President Karen Spilka said. “For example, a low-income household with two kids will see their tax refund check increase by more than $1,000 because of this bill. This is real money that our families need the most.”

A $600 child and family tax credit was the centerpiece of a tax relief bill Gov. Maura Healey filed in January. While lawmakers opted for a smaller per-dependent credit, Senate Ways and Means Committee Chair Michael Rodrigues said their version will still be “the largest universal child dependent tax credit in the country.”

Under the compromise unveiled Tuesday, the credit will rise to $310 this year from its current $180. Starting in 2024, families that include children, seniors or disabled adults will be able to receive a credit of $440. The bill also removes an existing cap on the credit, allowing it to be claimed for all children or dependents in a family.

The bill will also:

  • Raise the threshold for the estate tax from $1 million to $2 million.
  • Boost the earned income tax credit to 40% of the federal credit, a change lawmakers said would benefit nearly 400,000 taxpayers with income under $60,000.
  • Double, to a maximum $2,400, a tax credit — known as the “senior circuit breaker credit” — that helps people age 65 and older with their property taxes or rent.
  • Increase the cap on the rental deductions from $3,000 to $4,000.
  • Steer more money to programs aimed at building new housing. The cap for the Housing Development Incentive Program, focused on market-rate development in Gateway Cities, would grow from $10 million to $57 million this year, and then settle out at $30 million annually. The annual authorization for the Low Income Housing Tax Credit would grow from $40 million to $60 million. 
  • Triple the maximum credit for homeowners undergoing septic tank replacement or repair, to $18,000.
  • Cut the tax rate for short-term capital gains — profits on assets held for a year or less — from 12% to 8.5%. 

Lawmakers also agreed to a tax-policy measure related to the so-called millionaire's tax voters passed last year. A provision in the bill will require all Massachusetts married couples who file joint federal tax returns to also file joint state returns, so that couples with a combined income of over $1 million — but individual incomes below that threshold — would not be able to avoid the extra 4% surtax.
The Raise Up Massachusetts Coalition, which led the campaign to pass the millionaire's tax, said that move will close a loophole and "prevent Massachusetts from losing as much as $600 million in Fair Share revenue each year." The Massachusetts Fiscal Alliance, meanwhile, cast the change as a "marriage penalty" that could "incentivize more high-income earners to relocate or domicile elsewhere."

Beacon Hill officials have been working towards some form of tax relief since January 2022, when then-Gov. Charlie Baker announced a proposal he said was intended to “encourage our citizens to continue to call Massachusetts home and to help those struggling to make ends meet because of rising inflation.”

The House and Senate last year each passed tax break bills but never managed to come together on a final version, instead scuttling the roughly $1 billion package once it became clear that the state needed to return $3 billion to taxpayers under after runaway revenue collections exceeded a cap set under an obscure 1986 state law.

That law calls for refunds to be issued in proportion to how much someone paid in taxes — so people who earn more money and pay higher taxes would get more back than lower-income earners. This bill would change that, so if the law is triggered in the future, the refunds would be paid out equally to all taxpayers.

Healey, after talking up tax relief on the campaign trail, put forward her own plan this year, starting the cycle anew. The House and Senate rewrote Healey’s bill and each branch passed its own version this spring.

“This is a comprehensive package that delivers relief to families and businesses, including through our proposed Child and Family Tax Credit, and I look forward to reviewing the details and delivering for Massachusetts,” Healey said in a statement.