This session, the Idaho Legislature passed major tax legislation that provides significant tax cuts for Idahoans. The law increased conformity with federal tax changes passed last year and a tax break on the state level. In this sense, “conformity” means matching elements of state tax code to the federal tax code. No state conforms to federal code in all respects, but the greater the conformity, the simpler the tax code.
The Associated Taxpayers of Idaho (ATI) – a constituent group interested in nonpartisan, factual interpretation of tax policy made up of businesses, nonprofits, cities, counties and taxpayers throughout Idaho – reviewed and decoded HB 463, providing thoughtful input to help shape tax reform. ATI’s mission is to provide unbiased analysis of the law and its impact on Idaho businesses and families along with helping lawmakers and association members make well-informed decisions.
Following the passage of this year’s tax reform, many are left wondering how the law will affect them.
▪ First, the legislation conformed to federal laws recently approved by Congress.
▪ The bill also conformed to the Internal Revenue Code (IRC) as in past years, but also cut individual income tax rates across all seven tax brackets by 0.475 percent and cut the corporate rate by 0.475 percent to 6.925 percent. Taxpayers across all income levels will see a reduction in their individual income tax rates equally.
▪ By pairing the federal bill and the state tax break together, most Idahoans receive tax relief that varies based on income level, business type, and family size.
▪ Federal conformance increased the standard deduction, so most Idahoans will likely now benefit more by taking the standard deduction. Prior to this year, most middle-class Idahoans itemized on their taxes.
▪ Conforming to the IRC will help Idaho small businesses, and in turn, the families of small-business owners. Non-C corps receive a 20 percent reduction in the taxes they pay on their qualifying federal taxable income.
▪ Idaho created a $130 tax credit per child in addition to the federal credit, which doubled to $2,000. Idaho elected to add the child tax credit and rate reduction to help offset the loss of the dependent exemption, which Idaho taxpayers can no longer claim.
▪ Under the federal law, the tax burden on Idahoans was expected to increase by nearly $100 million. The new state tax cuts are just over $200 million, saving Idahoans over $100 million in taxes.
▪ Legislators are debating another bill aimed at increasing the child tax credit to $205, which would allow most larger families to avoid an increase in their state taxes. Earlier legislation lowered unemployment taxes by reducing the fund size multiplier from 1.5 to 1.3, which saves Idaho employers about $115 million over three years. When paired with the new law, these two bills can save Idaho taxpayers.
This new law proposed by Gov. Butch Otter was worked on heavily by Senate Pro Tempore Brent Hill, Assistant Majority Leader Chuck Winder, Chairman Dan Johnson, Speaker Scott Bedke, Majority Leader Mike Moyle and Chairman Gary Collins. It passed overwhelmingly and serves a critical purpose: It prevents taxes from unnecessarily increasing. The federal tax bill passed earlier this year actually increased the state tax burden on Idahoans due to the loss of the personal and dependent exemption deduction on the state level. Idaho doesn’t have as many tax provisions as other states, so the standard deduction wasn’t as beneficial.
Changes may still need to be made, but the new law pairs federal conformance with an Idaho tax cut, enabling Idahoans to simplify bookkeeping, receive a child tax credit and get a tax break with a rate reduction.
Miguel Legarreta is the president of the Associated Taxpayers of Idaho.