Lagging revenues, which threatened to sink the state’s new $30 billion budget, are no longer a concern after a windfall last month from Missouri tax filers who either forked over bigger-than-expected payments or got smaller-than-anticipated refunds.
The so-called “April Surprise” came from changes the state made to withholding tables in March 2018 to reflect revisions in the federal tax code. Without much fanfare, the changes led employers to take less money out of their employees’ paychecks for taxes.
“It was an awkward position for us all to be in, where in order to balance the budget, people had to receive surprise tax bills, ultimately,” state Rep. Kip Kendrick, the leading Democrat on the House Budget Committee, said.
Missouri has collected roughly $930 million so far this year, compared to about $440 million this time last year. Remittance payments are running at almost twice last year’s average, up to $1,358 from $704 .
Refunds are smaller as well. The state has calculated about $570 million in refunds, pending or issued, this year compared to $760 million this time last year. That’s about $80 less, on average.
The changes in the withholding tables came to light with unexpected trends in state revenue collections. Despite projected growth in revenue, daily comparisons of tax collections showed the state in the negative every single day starting in July of last year. The Department of Revenue modified the tables in October and corrected them again in January.
Hundreds of millions of dollars behind, lawmakers were expected to craft a state budget based on the prediction of more money in the state coffers, and Gov. Mike Parson’s agenda included more funding for infrastructure and workforce development programs.
While the state still needs to issue more refunds and collect more taxes in the next two months to hit its goal, revenue collections are once again in the positive.
“While we are relieved to see revenues starting to get on track with projections, we certainly wish we had a greater level of certainty this revenue was going to right itself,” Smith, R-Carthage, said.
“This has been an unnerving time for those of us in the General Assembly to work on budget and it’s certainly been, I’m sure, a stressful time for many Missourians who have been hit with a larger than expected tax bill in April.”
Smith noted that those April tax bills can be misleading. Overall, because of tax cuts made at the federal and state levels, Missourians have a lower tax liability compared to last year.
“We have to keep in mind that if taxes were under-withheld, that means that people had more money throughout the year and ultimately that’s a good thing,” Smith said.
The issue is that many taxpayers plan their finances around the “norm” of a big refund, both Smith and Kendrick said. But smaller refunds and bigger remittances are the new norm, now.
“Folks who have received the “April surprise” this year will largely be in the same camp next year,” Smith said.
Kendrick encouraged taxpayers to consult with an accountant and to check with their employer to change their W-4 to a suitable withholding scenario.
And for those who have issues paying their tax bill, the Department of Revenue offers payment plans, Kendrick said.
A bill that would keep the Department of Revenue from charging interest on late payments passed the Missouri House, but has yet to be brought up in the Missouri Senate. The legislative session ends May 17.