Client Tip for February 2019: 2019 WITHHOLDING TAX AND FORM MO W-4 CHANGES
2019 WITHHOLDING TAX AND FORM MO W-4 CHANGES
Missouri Lowers Tax Rates for Individuals
Missouri’s top individual income tax rate is decreased from 5.9% to 5.4% beginning in 2019 ($5 per $1,000).
The top rate can drop further to 5.1% if Missouri meets revenue targets. The rate will decrease by 0.1% for each year that Missouri meets its target.
Deduction for Federal Income Taxes
To offset the tax rate cut, Missouri now limits the deduction for Federal income tax paid for 2019. Single filers may still deduct up to $5,000, and combined filers may still deduct up to $10,000. But, beginning in 2019, Missouri phases out the deduction at specified Missouri adjusted gross income (AGI) levels. The Missouri AGI levels and the deductible percentage of Federal income tax rate are:
$25,000 or less
$25,001 to $50,000
$50,001 to $100,000
$100,001 to $125,000
$125,001 or more
Therefore, a married couple with Missouri AGI of $125,001 or more will lose the entire $10,000 Federal income tax paid deduction. This will increase the married couple’s Missouri income tax liability by $540 ($10,000 x 5.4%). If the married couple’s Missouri AGI is at $125,000, the rate reduction to 5.4% reduces their Missouri income tax liability by $625. The net tax savings to the married couple will be $85. High income taxpayers will see significantly more savings (e.g., taxpayers with $1 million of Missouri AGI will see their Missouri income tax liability decrease by $4,460).
The Missouri Department of Revenue has revised the withholding tables because of these changes. They chose to remove the entire Federal tax deduction from the withholding tax calculation. This change may result in a small increase to the amount withheld from employee’s paychecks. Any excess withholding will be refunded after the taxpayer files their individual income tax return.
The 2019 Missouri withholding tables are made up of three columns:
- Single or Married filing combined (spouse works or married filing separate);
- Head of Household; and
- Married filing combined (spouse does not work).
There are no longer allowances on the Missouri withholding tables for personal exemptions which were eliminated (Federal and Missouri) starting in 2018. If the employee needs a reduction or an increase in the amount to be withheld per the tables, they should mark the difference on lines 2 or 3 of the Form MO W-4.
We recommend that you have all of your employees complete a new Form MO W-4. The difference in withholding for Married filing combined (spouse works) versus Married filing combined (spouse does not work) can make quite a difference when looking at the total withholding for an entire year.
Employees can complete and print Form MO W-4 at https://dor.mo.gov/forms/MO-W-4.pdf.
Employees can also check their Missouri withholding by using Missouri’s on-line calculator at https://mytax.mo.gov/rptp/portal/home/withholding-calculator.