Missouri lawmakers recently overrode the Governor’s veto of an income tax reduction. This is the first individual income tax decrease in almost a century.
There are several parts to the bill. The first is a potential 0.1% drop in the top tax bracket (currently 6%) per year until the bracket is at 5.5%. The second is a 5% possible deduction in the business income (Schedule C, Partnership, or S Corporation) which is reported on an individual’s return. This will be phased in until the decrease equals 25%.
These changes do not take place until 2017, and require certain revenue growth before being implemented (currently there is no deduction). Each year the annual increase in general revenue in the prior year must exceed the highest prior three years revenue by $150 million for the rate drop and business income deduction to be allowed. This provision was placed in the bill to avoid dropping the tax rates and allowing a business income deduction when the state’s tax revenue is basically stagnant.
Beginning January 1, 2017 the income tax brackets will also be adjusted for inflation. The inflation rate will be based upon the change in CPI from one year to the next. Finally, all residents with Missouri adjusted gross income of less than $20,000 will be allowed an additional $500 deduction for single taxpayers and $1,000 for combined returns.