Written by: Madeline Brinker, CPA
Missouri taxpayers should be aware of the changes in state tax law that will benefit them beginning with the 2017 tax year. In 2014, legislature voted to override Governor Nixon's decision to veto Senate Bill 509. This act encompasses four provisions to current Missouri individual income tax law:
Reduction in Missouri Income Tax Rate*
The top income tax rate, applied to taxable income in excess of $9,000, for Missourians has been 6% since the 1970’s. Starting with the 2017 tax year, this tax rate is scheduled to be reduced by one-tenth of a percent each year, until the total reduction reaches one-half of a percent, lowering the top tax rate to 5.5%.
Tax Rate Brackets to be Indexed for Inflation
The $9,000 taxable income threshold for reaching the top tax rate has been in place since 1931. Starting with 2017, the Missouri income tax brackets will be indexed for inflation. Those tax brackets have yet to be released.
Business Income Deduction*
A new deduction will be available to individuals who have business income reported on Schedule C (sole proprietors), Form 1120-S (S-corporations), and Form 1065 (partnerships). The deduction will eventually be 25% of business income, phasing in at a rate of 5% per year. Owners of S-corporations and partnerships will receive a deduction proportionate to their share of the entity’s earnings as reported on their Schedule K-1(s).
Personal Exemption Increase
Missourians with adjusted gross income under $20,000 will see a $500 increase in their personal exemption from $2,100 to $2,600.
*The reduction in the top individual income tax rate and the business income deduction will not go into effect unless the net general revenue collected by the State of Missouri in the previous fiscal year exceeds the amount of general revenue in any one of the three fiscal years prior to such year by at least $150 million.