Missouri’s top individual income tax rate may decrease from 5.9% to 5.5% beginning in 2019. State lawmakers approved a bill containing the tax cut.
The top rate could drop further to 5.1% if the state meets revenue targets. The rate would decrease by 0.1% for each year that the state meets the revenue targets.
Also, beginning in 2019, the top rate could decrease by 0.1% if federal law gives states the ability to collect sales taxes from out-of-state online retailers. The federal law could come from Congress or the U.S. Supreme Court. The tax reduction would take effect:
- after the director of the Department of Revenue notifies state lawmakers that the department is prepared to collect the taxes; or
- if the director does not provide the notification within nine months of the federal action.
Deduction for Federal Income Taxes
To offset the tax cut, the bill reduces the deductible percentage of federal income tax paid. The $5,000 maximum deduction for single filers and $10,000 maximum deduction for combined filers would remain. But, beginning in 2019, the deduction would phase out at certain Missouri adjusted gross income levels. The Missouri adjusted gross income levels and deduction percentages are:
- $25,000 or less – 35%
- $25,001 to $50,000 – 25%
- $50,001 to $100,000 – 15%
- $100,001 to $125,000 – 5%
- $125,001 or more – 0%
Business Income Deduction
The bill also reduces the maximum business income deduction for individuals from 25% to 20%.
Personal and Dependent Exemptions
Also, the bill disallows personal and dependent exemptions when the federal exemption amount is zero.
Working Family Tax Credit
The bill creates a new Working Family Tax Credit. Residents who qualify for the federal earned income credit could claim the new credit. The credit amount is:
- for 2019, 10% of the federal earned income credit; and
- after 2019, 20% of the federal earned income credit.
However, the credit will take effect only if federal law gives states the ability to collect sales taxes from out-of-state online retailers.
Subscribers can view the text of the bill as passed by the General Assembly at https://house.mo.gov/billtracking/bills181/hlrbillspdf/6148S.10C.pdf.
H.B. 2540, as passed by the Missouri General Assembly on May 17, 2018