An Act establishing a tax on excessive executive compensation

194th Legislature (2025-2026) Introduced by Erika Uyterhoeven

A new Massachusetts tax on large corporations’ net income increases rates based on CEO/pay ratio to median US employee pay, with harsher boosts if US FTE decline and contracted sta

Purpose and intent

This proposed Massachusetts law would impose a new tax on corporate net income for large corporations doing business in the Commonwealth, tied to the ratio between executive compensation and employee median pay. The aim is to discourage excessive executive pay relative to typical workers and to raise state revenue from high‑paying firms.

Key provisions

Section 82 — Executive Compensation Tax (new addition to Chapter 63, §81)

Defines compensation for purposes of the tax:

Non-top executives (all employees other than the CEO, COO, or highest paid employee): wages as defined in Chapter 63, §1.
CEO, COO, or highest paid employee: total compensation as reported in the SEC Summary Compensation Table (as per Item 402 of Regulation S-K).

Defines the compensation ratio for the taxable year:

Numerator: average annual compensation of the CEO/COO/highest paid employee over the three calendar years preceding the tax year.
Denominator: median compensation of all United States employees of the taxpayer (including contracted employees) for the prior calendar year.

Section 2 — Tax base and rates

Applies to corporations with net income of $10,000,000 or more (doing business in Massachusetts and not expressly exempt).

Tax rate is a base rate plus adjustments based on the compensation ratio:

0–50: base rate + 0%
>50–100: base rate + 1%
>100–200: base rate + 2%
>200–300: base rate + 4%
>300–400: base rate + 6%
>400–500: base rate + 8%
>500: base rate + 10%

The base rate is the standard Massachusetts corporate tax rate; the statute specifies adjustments to that base rate based on the compensation ratio, not a separate flat rate.

Section 3 — Workforce dynamics adjustment

If the taxpayer’s US full‑time equivalent (FTE) count declines by more than 10% year‑over‑year while contracted/foreign FTEs rise, the applicable tax rate under Section 2 increases by 50% (i.e., a substantial penalty for reductions in US FTEs paired with increases in non‑US/contracted labor).

For new entrants to MA, prior-year employee counts are treated as zero.

Section 4 — Effective date

Takes effect for tax year beginning January 1, 2026.

Who would be affected

Large corporations with US operations and US‑based employees that report net income in Massachusetts (minimum $10 million) and are not expressly exempt.

Firms with high CEO/COO/highest paid compensation relative to median US employee pay would see higher tax rates; those reducing US FTEs while increasing contracted/foreign staff could face additional rate increases.

Implementation notes

Data sources relied upon for compensation (SEC filings) and employee counts (US-based full-time equivalents, including contracted staff).

The bill is a proposed measure (introduced in the 2025–2026 General Court) and would require passage by both houses and the governor to become law.

If you’d like, I can compare this proposal to existing Massachusetts taxes or similar “excessive executive pay” proposals in other states.

Bill