The Bloomberg BNA SALT Blog is a forum for practitioners and Bloomberg BNA editors to share ideas, raise issues, and network with colleagues about state and local tax topics. The ideas presented here are those of individuals and Bloomberg BNA bears no responsibility for the appropriateness or accuracy of the communications between group members.
Tuesday, April 23, 2013
State individual income tax rates can affect all sorts of behavior during the tax year, such as where the taxpayer chooses to carry on business, or where he chooses to live. Annual indexed changes to other elements such as the standard deduction and personal exemption amounts can affect taxpayer’s deductible expenses or willingness to donate to charity.
But as a recent report by the Tax Foundation makes clear, finding this basic tax rate information on state tax department websites is difficult or impossible in some jurisdictions. Annual indexing adjustments to tax bracket amounts is another complicating factor.
Thirty-four states have statute-based income tax brackets which are not indexed and thus do not vary from year to year. While this may seem transparent, as taxpayers don’t have to worry about varying rates and can predict their tax liability in advance, there is a hidden downside to static tax brackets—inflation.
As salaries increase with inflation, the fixed income brackets do not, causing taxes to go up disproportionately. This “bracket creep” is not always apparent to taxpayers, becoming a hidden tax increase that hides behind the often opaque wall of the tax code.
However, even those states which recognize this problem and index for inflation must also be aware of the need for transparency in income tax brackets. The seventeen states which index income tax brackets for inflation publicize their rate changes at varying times in the year, as shown in the chart below. Often the rates are not published at the same time of year, or in the same format as the year before, leaving taxpayers confused and unsure about their tax liability for that year.
Below is a cheat sheet for those seeking to remain current on the latest state inflation adjustments.
For more information about the importance of indexing for inflation, see the August 2011 policy brief from the Institute on Taxation and Economic Policy (ITEP).
States
Indexed Tax Brackets, Standard Deduction, and Personal Exemption
Indexed Personal Exemption Only
2012 Tax Information
2013 Tax Information
Notes
Arkansas
X
Estimated Tax Form – 1/13
California
Press Release – 8/12
2013 rates not yet released
Idaho
Website –April 2012
Estimated tax form not yet released
Uses personal exemption amounts provided by the federal code
Iowa
Tax Rate Schedule – 11/12
Maine
Tax Alert Publication – 10/11
Tax Alert Publication – 1/13
Massachusetts
Personal exemptions amounts have not changed since 2008
Michigan
Income Tax Return Form – 10/12
Not yet released
Minnesota
Press Release – 12/11
Press Release - 12/12
Montana
2013 exemption amount released on 2013 estimated tax form
Nebraska
Estimated Tax Form – 12/11
Estimated Tax Form – 11/12
North Dakota
Estimated Tax Form – No date published
Ohio
News Release – August 2012
Estimated Tax Form – 10/12
Oregon
Estimated Tax Form – 12/12
Rhode Island
Tax Advisory – 12/12
South Carolina
Estimated Tax Form – 9/12
Vermont
Wisconsin
Estimated Tax Form – 11/11
By Melissa Fernley, chart by Martelli-Yndee Borieux
Follow us on Twitter at: @BBNATaxJoin Bloomberg BNA's State Tax Group on LinkedIn
You must Sign In or Register to post a comment.
Weekly Round-Up: Is Florida Dialing Up a Sales Tax Rate Hike?
State Tax Snapshot: What are Your Hottest Emerging State Tax Issues?
Sales Tax Slice: This Weekend – Fast Horses, Fancy Hats, Margaritas… and Sales Tax?
States Allow Filing and Payment Extensions for Boston Marathon Victims