Voters statewide approved Constitutional Amendment Two, which will lower state income tax brackets, cap the highest brackets and remove the deduction for federal income taxes paid. With that done, what comes next? State Revenue Secretary Kimberly Lewis says they’ll immediately put out new state withholding tables that reflect the new rates.
“Everyone will get a new withholding amount in January from their employers, for those that withhold and for small business owners that remit their payments on quarterly estimates, they’re going to need to re-calculate those because this new tax change is effective January 1.”
The Amendment lowers the income tax brackets to 1.85-percent for the lowest income earners, 3.5-percent for middle incomes and 4.25-percent for the highest. It also places a cap on the highest brackets. Lewis says this will mean a great number of taxpayers will find they owe the state less when they file their 2021 state taxes.
“There are some people that will see an increase in the amount of tax they owe, because we also changed the excess itemized deductions. So there are two income tax changes at play, in addition to the rate change,” said Lewis.
Remember that the state tax deduction for federal income taxes paid is also going away, and this will also affect how much you may owe – or get back from – the state. Lewis says state legislators worked with her department to create a tax reform that would have minimal impact on small businesses and individual taxpayers,
“So that no one was paying a significant amount more; no was paying a significant amount less. The goal was revenue neutrality across all income levels,” said Lewis
Lewis says to be prepared for the tax changes brought by Amendment Two when you file state taxes in the Spring.
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