New legislation signed on October 5, 2022, exempts taxpayers’ first $1,000 of income from taxation and will reduce the top rate of individual income tax. This law will be applicable to tax years beginning on or after January 1, 2023. According to Missouri Governor Mike Parson, the law will be the largest tax cut in Missouri’s history when it is fully phased in and is estimated to be a $760 million reduction.
Key Takeaways:
- As of January 2023, all currently scheduled rate reductions will be repealed by this new legislation
- Taxable income of $1,000 or less will no longer be taxed, a sizeable increase from current rules declaring no tax on taxable income of less than $100
- Top income tax rate to decrease from 5.3% to 4.95% in 2023, with another possible reduction scheduled for 2024
Changes to Missouri’s Income Tax Rate
Under previous law, Missouri’s top income tax rate was scheduled to drop from 5.3% down to 5.2% in January, then gradually drop to 4.8%. However, the new law drops the rate much faster. Currently, there is no tax on taxable income of less than $100. After January, a taxable income of $1,000 or less will not be taxed.
This new legislation will repeal all currently scheduled rate reductions as of January 2023. The law will reduce the top rate of individual income tax from 5.3% down to 4.95%. It will also exempt the first $1,000 of income a taxpayer earns from taxation. These cuts will amount to an estimated 5% reduction in Missouri residents’ taxes and continue to grow each taxpayer’s savings in subsequent years.
Income Tax Rate Reductions in 2024
In the calendar year 2024, the top tax rate may be further reduced by about 0.15% from 2023’s tax rate to 4.8%. Notably, this tax rate reduction hinges on whether the amount of net general revenue collected in 2023 exceeds the highest amount of net general revenue collected in 2020, 2021 and 2022 by at least $175 million.
Additional Reductions
- This legislation provides for a potential top tax rate of 4.5% by having three additional potential 0.1% reductions.
- The tax rate modification will only apply to tax years that start on or after any modification takes effect.
According to the language of the bill, these three potential reductions will “only occur if the amount of net general revenue collected in the previous fiscal year exceeds the highest amount of net general revenue collected in any of the three fiscal years prior” to that fiscal year by at least $150 million. It would also have to exceed the amount of net general revenue collected in the fiscal year from five years prior. This will be adjusted annually by the increase in inflation percentage within those five previous fiscal years.
Still have questions about how this new law will impact you? Contact an Anders advisor below or reach out to the Anders tax team to discuss how recent changes in tax law can help you achieve your tax and financial goals.
