Hundreds of thousands of Missouri taxpayers may be in for a surprise when they file their state income tax returns next year.

Errors in the state withholding tables not corrected until September mean that instead of a modest refund, the bottom line on many of the 3 million income tax returns will be a payment. And for those who will receive a refund, it may be reduced by as much as 90 percent.

The Missouri Department of Revenue hasn’t issued any public notices of this result except a vague reference to it in a news release issued in September stating the tax tables were being adjusted.

“This unexpected decrease in withholding is due to a longstanding inaccurate calculation of the federal tax deduction that had previously gone undetected,” the news release stated. “As a result, some Missouri taxpayers are under-withholding for the 2018 tax period, meaning those taxpayers may see a smaller refund or a greater balance owed than they had seen in previous years.”

No one from the department was available to comment Friday after Gov. Mike Parson and legislative budget leaders announced the annual consensus revenue estimate that will be the basis for budget decisions in the session that begins Jan. 9. But the worksheet for the estimate shows the magnitude of the statewide issue and the department has analyzed some returns and shared the results with some lawmakers on the House Budget Committee.

Total individual income tax refunds are expected to fall by $231.5 million, or 20.5 percent, and remittances — payments that accompany income tax forms — are expected to increase by $134.4 million, or 15.4 percent, according to the estimate worksheet. The individual income tax is expected to net $6.7 billion, almost 70 percent of general revenue.

The overall estimate also shows the size of the revenue impact. General revenue receipts were down 4.9 percent through the first five months of the fiscal year and are expected to be up 1.7 percent by the time it ends in June. Revenue growth for the budget Parson will propose is estimated at 2 percent.

The department analysis of 2,000 returns from single filers shows the average refund of $73.70 was replaced by an average remittance of $64.99. For head-of-household filers — generally single taxpayers with children — the average refund was reduced from $156.07 to $17.61.

The department hasn’t done enough to prepare Missourians for the likelihood they will owe money, said state Rep. Kip Kendrick, D-Columbia, the ranking minority member of the House Budget Committee.

“I don’t see how they have prepared Missourians, especially coming on the heels of the release of the consensus revenue estimate today,” Kendrick said.

One response that should be considered, Kendrick said, is an extended grace period to make payments without penalty.

A Nov. 30 email memo from House Appropriations staff to lawmakers, provided to the Tribune by a lawmaker, said the department had not finished its analysis of returns from married couples because it “had turned into a nightmare so they didn’t have that available yet.”

“This is a major, major oversight,” Kendrick said.

The approximately $140 swing from refund to payment “is going to be an inconvenience for people,” said outgoing House Budget Committee Chairman Scott Fitzpatrick, R-Shell Knob.

Fitzpatrick will become state treasurer this week after Eric Schmitt moves to the attorney general’s office after Josh Hawley is sworn into the U.S. Senate on Thursday.

“The average person is not going to see a thousand dollar swing,” Fitzpatrick said.

The Department of Revenue is still working to figure out which taxpayers will see the biggest change in their liability, which explains why it has been silent, Fitzpatrick said.

“Literally up to the last several days they have been trying to understand it themselves,” he said. “The only thing worse than no information is bad information.”

Part of the issue is the way the department interpreted federal tax changes and the impact on Missouri revenues. Congress doubled the standard deduction and eliminated the personal exemption. Missouri bases its income taxes on the federal system and only allows a personal exemption if one is available for federal filers.

Payroll withholding is based on information provided by employees through a W-2 form. Taxpayers who minimize the number of dependents claimed — which in the past has helped make sure they didn’t owe the state money when they file — will see the largest impact, said several of those interviewed for this article.

“Apparently what it has done is made it an opposite situation,” Fitzpatrick said. “Now you should claim those dependents to not owe money. For people who didn’t change their elections after the tax changes occurred, having no dependents creates a liability.”

In past years, the result of falling revenue through the first five months of a fiscal year would be extraordinary withholding and a December estimate that overall revenue was likely to remain flat or decline for the entire year. It may create inconvenience or worse for individual taxpayers in coming months, but the state budget will likely be sustained at current levels.

“The good news is we had enough growth for this year’s budget to be balanced,” Fitzpatrick said.

rkeller@columbiatribune.com

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