It’s not just your federal income tax bill that stands to be impacted by the recent federal tax code overhaul. Your state income tax tab could change, too.
A couple of states have already enacted legislation to lower taxes, and more are expected to follow, the Tax Foundation reported recently.
These changes stem from the fact that state tax codes generally conform to many federal tax code provisions. Because of federal tax reform, states may experience higher collection rates — largely due to things like the repeal of the personal exemption, reduction of itemized deductions, and limitations on the interest deduction.
As a result, states may see more tax revenue, according to the foundation:
“How these provisions affect revenues varies from state to state, but most states can expect higher collections because of federal tax reform.”
Some states have decided to give these new revenues back to taxpayers in the form of a tax cut.
In Idaho, for example, conforming with the new federal tax code will increase that state’s tax revenue by an estimated $97.4 million this year, according to the Idaho State Tax Commission.
By far the biggest factor contributing to that increase is the state’s conforming with the federal government’s killing of the personal exemption. In other words, Idaho taxpayers won’t be able to claim that tax deduction on their federal or state tax returns.
The upside is that Idaho lawmakers responded by lowering state income tax rates a tad. The recently adopted House Bill 463 lowers Idaho’s income tax rate for individuals by 0.475 of a percentage point across the board and lowers the corporate income tax rate by 0.475 of a percentage point, among other changes.
Georgia is the other state that so far has adopted legislation to lower state income taxes. Georgia’s House Bill 918 will lower the top individual and corporate income tax rates from 6 to 5.5 percent by 2020, among other changes.
State legislation that would have similar impacts is also being actively considered in other states, according to the Tax Foundation.
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