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State income taxes will go up about $96 for 'Average Joe' even with $30 million tax break

State income taxes will go up about $96 for 'Average Joe' even with $30 million tax break

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SALT LAKE CITY — Utah's "average" taxpayers will still see about a $96 increase in their state income taxes next year, even with the Utah Legislature's new $30 million tax break for families.

But that's about half of the $198 increase they could have expected before lawmakers voted in special session Wednesday to create a dependent tax credit intended to help offset the impact of a new federal tax law that eliminated personal exemptions.

The numbers, released Thursday by the Utah State Tax Commission, are based on what's called an "Average Joe" taxpayer who is married with three children, earns $70,000 a year and files a joint tax return.

What dropped from an 8 percent to a 4 percent increase as a result of the dependent tax credit is on top of the $2,374 that hypothetical taxpayer owed the state this year in income taxes.

When Congress passed a $1.5 trillion tax cut late last year, Average Joe faced owing an additional $233 in state income taxes, a 10 percent increase, because state returns rely on calculations made to determine federal taxes owed.

What's hitting Utah's larger families hard is the elimination of personal exemptions as part of the federal tax overhaul. During the 2018 Legislature, lawmakers were told to expect an $80 million windfall from the federal tax changes.

State income tax rates were reduced during the regular session from 5 percent to 4.95 percent. But a bill with a $60 million price tag that would have provided a dependent exemption of more than $3,000 never got out of committee.

Legislative leaders had a change of heart just before this week's special session and put together a smaller tax break, funded largely from additional revenues coming from corporate taxpayers as a result of the federal tax changes.

The $30 million is expected to provide a $34 per-dependent tax credit, worth $170 to a family with five children. Unlike exemptions, which lower the income that taxes are calculated on, a credit reduces the amount of taxes owed.

"A credit is a dollar-for-dollar reduction of your tax," Utah State Tax Commission Chairman John Valentine said. The ability to take tax credits phases out completely for married Utahns filing a joint return at about $148,000, he said.

"I think the Legislature was responsive to the lower- and middle-income taxpayers who had a fairly significant tax increase," Valentine said, lowering the tax burden of those with families.

Lawmakers said constituents started complaining about having to pay more in state income taxes around the time that the tax commission released new withholding tables to employers earlier this year.

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"I felt from my constituents that the tax cut they were looking for was to solve the challenge they received this year with the federal," Senate Majority Whip Stuart Adams, R-Layton, said.

Adams said even though some taxpayers may end up owing less in taxes overall because of the federal tax cuts, families with a lot of dependents were concerned about a bigger bill from the state.

"We reacted to that in this special session," he said. "That's why we wanted to focus on this."

Valentine's advice for Utah taxpayers now that the tax credit is in place is to "thank their legislators because they did recognize the federal action increased their taxes and took action to reduce it."

He said the tax commission is debating whether to adjust the state income tax withholding tables again to reflect the $30 million tax break and potentially create confusion for employers.

Valentine said the tax commission waited until after the legislative session ended in March to update the tables to spell out how much money should be withheld from paychecks to cover taxes rather than doing it at the beginning of the year.

First though, the tax commission has to incorporate the new dependent credit into the state tax forms and filing information that will go out next January. Preparing that usually takes nine months, Valentine said.

"That's what we're spending time on right now to be honest with you. We have to scramble," he said. "We have to get them done or we'll be in a disaster come January."

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