Tax season opened Jan. 19, when the I.R.S. started collecting returns and many states followed. Some dread the season expecting a large tax bill, while others gleefully anticipate a refund. No matter your tax outcome, we can all agree that tax proposals lowering personal income taxes are welcomed.
Last month, many state legislative sessions convened across the country and governors delivered their state of the state addresses bringing in a new round of tax goals. Legislators and governors propose to reduce your tax liability in several ways: a tax rate cut, an increase in deductions, exclusions, exemptions or credits, or a combination thereof. Here are some key state legislative and gubernatorial proposals that may affect your individual income tax.
Across the country, there is a trend to decrease taxes for our retirees. In Maryland, Gov. Larry Hogan (R) plans to “gradually increase seniors’ personal exemption from $1,000 to $5,000 over four years,” reports Kathy Lundy Springuel in Bloomberg BNA’s Daily Tax Report. New Jersey bill S.B. 998, sponsored by Senator Paul Sarlo (D), takes a different approach, proposing a retirement income exclusion that will increase over a three-year period from $15,000 to $75,000 for singles and$20,000 to $100,000 for married couples. In South Carolina, Gov. Nikki R. Haley (R) proposes to exclude active duty military retirement income from tax, reports Andrew M. Ballard in Bloomberg BNA’s Daily Tax Report. South Carolina already exempts retirement income from the National Guard and Reserve.
Several states are calling for tax rate cuts. Georgia Senate Finance Chairman Judson Hill (R) is pursuing to cut the maximum individual income rate to 5.4 percent from 6 percent for tax years starting on or after Jan. 1, 2017. In addition, Hill, proposes a personal income tax rate cap of 5 percent via constitutional amendment reports The Atlanta Journal-Constitution. In Maine, Gov. Paul R. LePage (R) is working on completely phasing out Maine’s income tax by 2024, reports Adrianne Appel in Bloomberg BNA’s Daily Tax Report.
Sometimes tax rate proposals depend on your tax bracket. New York legislation seeks to decrease tax rates for middle-income taxpayers. This is coupled with an increase in tax rates for the wealthy, reports Gerald B. Silverman in Bloomberg BNA’s Daily Tax Report.
Other state legislation aims to benefit middle- and low-income households. For example, state legislators in North Carolina seek to increase the standard deduction by up to $2,000, raising the standard deduction for single taxpayers from $7,750 to $8,750 and married couples filing jointly from $15,500 to $17,500, reports the News & Observer. This change benefits those with middle- to low-income because they pay a higher ratio of taxes compared to their income. Additionally, Delaware H.B. 253 proposes to change the earned income tax credit in the state from a nonrefundable credit to a refundable one starting in 2017. Allowing the credit to exceed the tax due puts money in the pocket of those the EITC set out to benefit.
There are many states pushing for personal income tax reduction. Is your state one of them?
Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Which tax changes in individual income best addresses individual needs - a decrease in the tax rate or an increase in exemptions, exclusions, deductions or credits?
For more information about individual income taxes, check out Bloomberg BNA’s Individual Income Tax Navigator by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.
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