State income tax cut is coming, but most won’t notice a big impact
Nov. 5—Missouri residents will soon benefit from a historic tax rate cut, but a St. Joseph CPA says most people won’t see as much savings as they might have provide.
Gov. Mike Parson toured the state this week, ceremonially signing tax rate reduction bills. He originally signed the bills into law Oct. 5 at the end of a special legislative session he called to pass the tax measure.
Missouri’s income tax rate was set at 6% until 2018. It has been slowly coming down since then.
Income earned in Missouri for the 2022 tax year will be taxed at a rate of 5.3%. For the upcoming tax year, which begins January 1, Missouri income will be taxed at 4.95%. Also, the first $1,000 won will not be taxed.
“This historic tax cut means more money for Missourians to spend, invest and save. It means economic growth, expanding businesses and well-paying jobs for Missourians today and tomorrow,” wrote Parson in a statement.
The Missouri Budget Project, an independent budget analysis group, released a report that middle-income families earning $52,000 per year will see about $5.50 in savings per month or $66 per year. The top 1% in the state, those earning more than $550,000, would see about $4,214 in savings per year.
David Liechti is a Chartered Accountant and a member of the management of Liechti, Franken, Hilsabeck & Gawatz in St. Joseph.
“The higher your income, the more likely you’ll see it in dollars, but it’s the same rate for everyone,” Liechti said. “So it’s really very fair across the board and everyone saves the same percentage amount.”
Not all legislators are in favor of the tax cut. State Rep. LaKeySha Bosley of St. Louis said on the St. Louis public radio program “Politically Speaking” that it would have been better to cut taxes on food or diapers, which would have benefited more directly to low-income workers.
With this change, Missouri has the second-lowest income tax rate among border states. Oklahomans are taxed at 4.75 percent for this year.
“I think the lower the rate, the more attractive the state is for people to move to Missouri,” Liechti said. “The higher it is, I think it distracts interest, maybe.”
Withholdings should automatically adjust with the new tax rate, Liechti said. Self-employed people, however, should speak with their CPA to readjust their estimated tax payments, Liechti said.
The new tax law will also allow additional tax reductions each year three times at the tax rate of 4.5%. The reduction would only occur if state revenues increased by $200 million adjusted for inflation over the previous three years.
The bills also extended several farm tax credits and created a few as well. New tax credit programs include those for high-ethanol fuels and biodiesel retailers, biodiesel producers and urban farms.
The loss of tax revenue for the state will impact Missouri’s general revenues which fund state programs and services. That means about $513 million in revenue in the first year and $1.15 billion a year once the cuts are fully implemented.