BOISE — Idaho Senate President Pro-Tem Brent Hill, a longtime CPA, held up a handout from the state Tax Commission warning, “Avoid a tax surprise: “ACT NOW!”
Few did, he said.
Massive federal tax changes last year included doubling the standard deduction, but eliminating personal and dependent exemptions. “What if you don’t take the standard deduction? You just lost the deduction, you don’t get that,” Hill said at Wednesday’s Associated Taxpayers of Idaho annual conference. At the same time, many other itemized deductions were eliminated or capped, while rates were lowered. Idaho conformed to most of the changes, so they apply to state income taxes as well.
As a result, the W-4 forms that most Idahoans have had on file with their employers for a decade or more without change no longer matched the appropriate withholding levels for federal and state income taxes. That’s what the Tax Commission was trying to get folks to do: Update their W-4 forms. But many didn’t.
“How does this all play out? It plays out differently than it did for 2017,” Hill said. “It plays out differently on your personal tax returns, and it plays out differently as far as trying to set a state budget.”
Since the fiscal year began, Idaho has seen big shortfalls compared to its projections for personal income tax withholding. That appears to be because all those Idaho taxpayers who didn’t update their W-4 forms are being under-withheld, and as a result, will end up having to pay, both at the federal and state levels, when they file their tax returns this spring.
“People are going to blame the Legislature, they’re going to blame the tax commissioners,” Hill said.
In most cases, Idahoans actually will be paying less in taxes, he said, but they’ve had much less taken out in withholding — so they’ll owe much more at tax time. He shared several examples. A married couple with two kids, filing jointly with $50,000 in income, would have gotten a $313 state tax refund in 2017, but will have to pay $370 at tax time this spring. If that couple had updated its W-4 forms, it would get a $15 refund at tax time this year.
A single person with the same income got a $289 refund last year, Hill estimated, but will have to pay $197 this year. If that taxpayer had filed updated W-4s, it would have instead been an $8 refund this spring.
“You’re probably going to have to pay,” Hill said. “We need to do a better job of educating our employers, need to do a better job of educating the public.”
This creates something of a dilemma for setting the state budget, he said. “We think there’s going to be a whole bunch of money coming in in April. All these little schedules say that’s going to happen. … We’re 90 percent sure that we’re going to get this big windfall in April.” But that 10 percent possibility still could happen, he said, especially if a recession sets in. That will change the nature of discussions over surplus eliminators and other budgeting approaches. Said Hill, “What you’re probably going to see is the Legislature is probably going to be real frugal in setting the budget.”
This article first appeared in the Idaho Press’ Eye on Boise blog.