It turns out that many working Missourians may have underpaid their taxes last year.
In the complicated world of income taxation, a federal tax cut automatically caused a state tax cut, and the result may have caused many people to pay too little. Hence, a surprise tax bill may arrive in April.
Huh? Taxes went down, so you might have to pay more?
Yes. Over a year ago, the federal government passed a tax cut package that the president has been touting ever since. Soon after, officials in Jefferson City noted that since our Missouri income tax code is tied to a number of federal rules, it also means many will get a state tax cut starting in 2018, too.
The state promptly recalculated the tax withholding tables, which employers use for their employees to make estimated installment payments from each paycheck throughout the year. But by September, the Missouri Department of Revenue noted something was off. The tables were adjusted down too much, and updated tables were issued on its website.
State officials now admit they could have been more helpful giving people a heads-up about potential underpayments. Revenue Department Director Joel Walters (whom I have heard speak about other topics — he’s one smart cookie) conceded that “we should have done more.”
He did mention posting messages on Twitter and Facebook, plus mentioning it in his speeches. I don’t know about you, Dear Reader, but there ain’t much space in my social media feed dedicated to the Missouri Department of Revenue. Maybe local legislators, journalists, employers and/or tax professionals could have raised awareness instead.
We’re not talking about a ton of money for the average working Missourian. Last Friday, the Columbia Daily Tribune reported on a September Revenue Department analysis that the average single tax filer might expect what would have been a $74 refund to be flipped into a $65 check due in April.
Likewise, the average head of household’s $156 refund will get whacked down to just $18. Joint filings, they way, are too complex to estimate, which I do not doubt.
Payroll tax withholding is essentially prepaying installments of your estimated taxes so you don’t have to pay all at once. So although receiving a tax refund is popular, it is in fact an illusion. It means you just paid too much too early.
To send in a payment with your tax return actually means you got to keep your money longer — congratulations. You pay the same amount in the end either way.
Some legislators, including House Minority Leader Crystal Quade, D-Springfield, sympathize with the soon-to-be surprised taxpayer, so here come proposals for delayed payment plans and such.
Although I can certainly appreciate the sentiment, it was reported that Quade’s proposal is only for those who owe $200 or less. It might as well be a proposal to buy a cheap microwave oven via a rent-to-own option, though waiving potential penalties for inadvertently withholding too little last year would be nice.
Bigger picture, it would be enlightening to do away with income tax withholding altogether. Having to write one big check annually for one’s tax responsibility would wake people up to the reality of what we actually pay in taxes.
Even under the arguable premise that taxes are the price of citizenship, few of us really know the cost of being a Missouri resident. Do you? But this general mystery doesn’t seem to promote a healthy democracy.
The local property tax process is very clear in this regard. In fact, you might remember the specific dollar amount you paid a few short weeks ago. That’s because we all get a bill in the mail annually like clockwork. Just eyeball the amount on the invoice and turn in a payment before New Year’s Day.
You may grumble about it, but there is no mystery about what you owe or the terms of payment.
The county or school district gets paid a lump sum in December, and they know what they have to live off all next year. Meanwhile, the sacrifice of writing that check (often with a poignant comma in it) requires us to clearly understand what we each have invested in our public institutions. That seems like a good thing.
The federal tax bill came to the state on short notice and income taxes are complicated. So it sounds as if the state tried to estimate the impact but undershot the rates a bit.Things happen. No need to gloss it over. The state should treat us like adults to pay up and move on. They could, though, send us a thank-you note.
Steve Spellman hosts “The Mid-Missouri Freedom Forum” on 89.5 KOPN at 5 p.m. every Tuesday.