An “April surprise” is coming for Missouri taxpayers, and the House Budget Committee wants to know why.
The state miscalculated its tax table that determines how much should be withheld from Missourians’ paychecks. That means not only will some taxpayers owe more than they anticipated, but the state is running more than half a billion dollars behind on tax collections.
“As of today, we are behind revenue about 10 percent, or $536 million as compared to last year, despite having a good national economy,” said newly minted House Budget Committee Chair Cody Smith, R- Carthage. “Missouri seems to be unique.”
That “uniqueness” comes from a decreased withholding taken out of paychecks. To find out why and how that happened, Smith and other members of the committee Wednesday afternoon questioned representatives from the Missouri Department of Revenue.
The answer is twofold, Joel Walters, the director of the revenue department, told the committee. The implementation of President Donald Trump’s signature 2017 tax bill doubled federal-level deductions, which in turn amplified the effects of a 15-year-old miscalculation in the state tax tables.
Walters said the department first realized the state revenue was amiss around May. It started to notice “revenue falling on the line related to individual income tax withholding,” he said, noting that when the federal tax bill was passed, the state consulted an MU economist to analyze and project changes. Walters said the federal tax tables were issued in January 2018 and the state tables in March. It took six to eight weeks to take effect, but once it did, the numbers weren’t right.
“The fall in the revenue as the (new tax law) went into effect looked like it was bigger than it should have been,” he said.
Those projections prompted the department to evaluate the state tax withholding tables. In September, the department found the formulaic error that had apparently been there, undetected, for at least 15 years.
The table failed to take into account the standard deduction in the calculation of the federal income tax deduction, said Walters, who added that before the 2017 tax law, the error’s effects were relatively small.
“The (2017) federal tax bill did two things that impacted that: It doubled the size of the standard deduction and pushed more people away from itemizing toward the standard deduction,” Walters said.
Those changes finally exposed the 15-year-old mistake.
When the Department of Revenue realized the error, it sent out a press release and circulated messages alerting Missourians to check their withholdings. Walters assured the House committee that none of these errors will affect the amount of taxes Missourians ultimately owe, but some lawmakers Wednesday criticized Walters and his team for a breakdown in communication that could leave some Missouri taxpayers with an unexpected bill this spring.
“It’s a lack of communication,” Rep. Kip Kendrick, D-Columbia, said to Walters.
“Constituents are going to be hit very hard — many of whom are living paycheck to paycheck,” said Kendrick, the committee’s ranking minority member.
Rep. Robert Ross, R-Yukon, who used the phrase “April surprise” to describe the tax snafu, urged greater transparency from Walters’ department.
“We’re all human; we all make mistakes. I understand that. Could you tell me why you’re not willing to communicate with Missouri taxpayers and say we discovered an issue?”