Missouri lawmakers passed an income tax cut starting next year. What does it mean for you?

JEFFERSON CITY — Income tax rates in Missouri will begin to fall over the coming years under a plan approved by state lawmakers at the end of September.

Called back to the Capitol by Gov. Mike Parson for a special legislative session, Republican supermajorities put together a bill reducing the percentage of a person's earned income that is subject to state. The end result is a plan that makes an immediate cut, followed by a series of smaller cuts depending on how the state grows economically.

Here's everything you need to know, as a taxpayer, about the planned cuts and how they will impact you and other Missourians.

Want to dive deeper? Click to read more of our reporting on the process behind Missouri's tax cut plan:

• For subscribers: Lawmakers aim to cut income tax. Is it well-timed relief or a potential pitfall?

• More than 10 plans were filed to cut taxes. Here's how they differed

• How Republicans sought common ground and found a path forward on tax cuts

• Missouri legislature passes income tax cut, ditching plan for eliminating corporate tax

How much are taxes being cut? When do the changes take effect?

Missouri's current top individual income tax rate is currently 5.3 percent. Under the plan, that top rate would fall to 4.9 percent in early 2023 — lower than all of Missouri's neighbors but Oklahoma, which sits at 4.75 percent.

After that initial cut, additional reductions will take place every year that the state's revenues perform well. The next cut would bring the top rate from 4.9 percent to 4.8 percent; any future cuts would lower the top rate by .1% until it hits the floor of 4.5%.

Under the law, the rate can only decrease once per year; because of the revenue requirements, it's not guaranteed to decline every year consecutively. The gradual cuts were put in place by the bill's sponsors as a safeguard against potential recessions, to ensure that the state's wallet doesn't continue to empty as some cashflows dry up.

If every "trigger" for a cut is met, the full plan is expected to be implemented by fiscal year 2028. Missouri Budget Project, a think tank that studies financial issues, estimated it would be fully implemented by 2032 or later, meaning there will be several years in which the state doesn't bring in enough money to trigger a .1% cut.

How much can I expect to see my taxes shrink? Who benefits the most?

As with any legislation or policy that relies on economic projections and varying incomes, it's hard to say exactly how much you could see from the tax cut. But an analysis of the plan offers early indicators.

According to Missouri Budget Project's evaluation of the plan, the wealthy would see significantly higher reductions in their tax burdens — due in part to the nature of income tax in Missouri. For instance, the think tank projects that in the first year, the average person making between $22,000 and $40,000 will see around $17 less taken for taxes. A person making between $229,000 and $552,000 would see around $826 in the first year; the average person making more than $552,000 is projected to get $4,214.

Here's how much Missouri Budget Project projects an average taxpayer from each income group would save per year, once the plan is fully implemented (likely 2032 or later, by their estimation):

• Less than $22,000 (lowest 20%): $3

• $22,000-$40,000 (second 20%): $29

• $40,000-$66,000 (middle 20%): $131

• $66,000-$110,000 (fourth 20%): $298

• $110,000-$229,000 (next 15%): $759

• $229,000-$552,000 (next 4%): $1,855

• More than $552,000 (top 1%): $9,578

The governor's office hasn't released statistics or analysis on how much taxpayers would get back from the plan depending on their income. But graphics posted by Parson's social media account last month aimed to show how certain households would have benefitted from the governor's original proposal, which called for the top individual rate to drop to 4.8 percent in 2023. (Under the final plan, 4.8 percent could be reached in 2024.)

According to the governor's office, under his original plan, a single adult making $25,000 would have saved around $115; a married couple with 3 children would save around $324.

Will I get any tax rebate or a direct check?

No.

A program that would send tax refunds directly to Missourians' bank accounts has been popular in some corners of the Capitol this year, but it never earned the approval of the governor and other key lawmakers involved in crafting the tax cut plan. Parson vetoed a bill passed by the legislature earlier this year that would have sent checks of up to $500 for individuals and $1,000 for married couples, calling it well-intentioned but not the best path for tax relief.

Several lawmakers, including Springfield Republican Sen. Lincoln Hough, attempted to revive some version of that bill during the special session. Hough's proposal would have added a rebate program of $325 for individuals and $650 for couples, but it was stripped out during negotiations. Democrats, who were lukewarm about the tax credit plan earlier this year because it left out around one-third of the state, said they still would have preferred it to the end result.

What are Republicans and Democrats saying about the plan?

Republicans, who hold both chambers of the legislature in addition to the governor's office, were widely in favor of the plan, touting it as vital relief for Missourians facing rising prices and inflation, and a state enjoying a surplus of revenue.

"Even after earlier this year, we passed the largest budget in the state's history, we still have an excessive amount of revenue left over," said Rep. Cody Smith, a Carthage Republican who chairs the House budget committee. Hough, who is set to likely be the next budget chair in the Senate, called it a "fiscally-responsible blueprint that will continue to provide tax relief to hardworking Missourians for years to come."

Democrats roundly criticized the plan, arguing that during the next economic downturn, reduced revenue could lead to the state's important programs and agencies being underfunded. House Minority Leader Crystal Quade said Republicans "won't tell you that most folks will get just a few bucks a year. They won't tell you that one-third of Missourians will get nothing."

The bill passed primarily across party lines in both chambers, though a few Democrats in the House and Senate either voted in favor or "present." And not every Republican was thrilled with the end result; Rep. Bill Kidd of Buckner, despite eventually voting "yes," said last week that he would have preferred the legislature cut personal property tax.

"If you're on a fixed income or low income, this tax cut's really not going to do much for you at all," Kidd said.

Galen Bacharier covers Missouri politics & government for the News-Leader. Contact him at gbacharier@news-leader.com, (573) 219-7440 or on Twitter @galenbacharier.

This article originally appeared on Springfield News-Leader: When Missouri's income tax cut starts, how much money you could save