State Tax Amnesties: Short-Term Gains, Long-Term Concerns

Massachusetts is set to introduce a tax amnesty program in 2025, expected to generate a one-time $100 million revenue boost. Governor Maura Healey recently signed a budget bill authorizing a 60-day amnesty period, allowing taxpayers to pay overdue taxes without penalties. This initiative aims to bring thousands of delinquent taxpayers into compliance and significantly increase state tax collections.

However, experts caution that amnesties may encourage future noncompliance. “Amnesties can undermine tax morale among taxpayers who feel that amnesties reward tax evasion,” said Alejandro Zentner, a finance professor at the University of Texas-Dallas.

Key Features of Tax Amnesties

Tax amnesties are designed to boost revenue and achieve specific compliance goals by offering voluntary participation, waiving penalties, and setting a limited time frame. Enhanced enforcement often follows the amnesty period to encourage participation.

Since 2010, 41 broad amnesties have been offered, with just three—Connecticut, Illinois, and Nevada—since 2019. This decline is attributed to strong federal support during the pandemic, reducing states’ need for additional revenue

Massachusetts’ Department of Revenue has broad discretion to administer the 2025 amnesty, which will be open to most individual and business taxpayers with overdue taxes on returns due before December 31, 2024. The program is expected to mirror a similar initiative in 2016 that collected $136.8 million in back taxes.

Evaluating Tax Amnesties

While tax amnesties can provide short-term revenue, their long-term effectiveness remains debated. Critics argue that amnesties may unfairly penalize compliant taxpayers and create a moral hazard by encouraging future non-compliance.

Recent research suggests that messaging can enhance the effectiveness of amnesties. In a 2020 study with Dominican Republic tax authorities, researchers found that targeted messaging increased debt repayment rates, with one message threatening imprisonment yielding higher payments. The study also found that businesses were more responsive to amnesty programs than individuals.

How Tonneson + Co Can Assist You

Navigating tax amnesty programs can be complex, but Tonneson is here to simplify the process. As a regional leader in tax, advisory, and assurance services, we offer expert guidance tailored to your unique needs. Whether you’re an individual or a business, our team will help you take full advantage of the upcoming Massachusetts tax amnesty, ensuring compliance and minimizing liabilities. Reach out to Tonneson today to secure your financial future with confidence.