Tax refunds at stake as state budget facing $500 million-plus shortfall

The Missouri Department of Revenue reported to lawmakers that the state has collected much less than expected at this point in the fiscal year.

“As of (Wednesday), we are over $500 million behind schedule,” said Rep. Cody Smith, R – Carthage, who chairs the House Budget Committee. “That is a very troubling number as we go into the FY2020 budget.”

Officials with the Department of Revenue told the Budget Committee they suspect that the shortfall could have been caused by issues with personal income tax withholdings.

The federal tax cut that went into effect in 2018 should have prompted a change in Missouri’s withholding tax tables, but the department made an error. The tax tables were updated in September.

“When the federal government made their tax changes, we interpreted those changes and we altered withholding tables. But that was done wrong,” said Minority Floor Leader Rep. Crystal Quade, D – Springfield.

Smith said the Department of Revenue has “complete faith that we will catch up,” and Speaker of the House Elijah Haahr, R – Springfield, agrees.

“The House has always been on top of this, and I thought that was made very clear in the (Budget Committee hearing on Wednesday),” Haahr said. “I still am very confident that as taxes begin to come in, particularly as we get closer and closer to April 15, we’ll see those numbers come back.”

“I don’t feel confident about it,” Quade said. She fears that Missourians who normally receive tax refunds of $300 or less could receive a bill instead, which could make budgeting more difficult. It is also not clear how many could be impacted by the shortfall, if any.

“$532 million is a lot of money. So that must mean that there’s a lot of people that will be getting these surprise tax bills that they otherwise weren’t expecting to have,” Quade said.

In response to the error, Quade filed a bill that would give taxpayers who owe less than $200 more time to pay the state, or allow them to pay in increments without interest through October.

“This was the Department of Revenue of the state of Missouri’s error,” Quade said. “I don’t believe we should be charging folks a penalty for paying that money back late, when they weren’t even really notified that this was a situation to begin with.”