IRS

States Have Changed Their Tax Rates This Year

November 28, 2017 : Monica Welsh

While there has been plenty of coverage in the recent months about possible changes to the Federal tax laws and rates, many states have enacted changes to their own tax laws and rates. Because these changes normally miss the national news, you likely have missed out on the updates unless they happened in your state.

If you earn wages in other states or run a business in a state other than your place of residence, you could be affected.

This blog will focus mainly on state tax rates for the 2017 tax year, but will also mention a handful that will come into effect in the next few years as well.

 

Illinois

Effective as of July 1, 2017, there are new individual and business rates in effect for Illinois state tax:

  • The income tax rate for all individuals  , estates, and trusts has increased from 3.75% to 4.95%
  •  The income tax rate for corporations (including S corps) has increased from 5.25% to 7%

Since these changes took effect mid-year, there could be some associated complications. If you are a calendar year filer with no estimated payments, all the changes should be handled on your 2017 return. The changes will be accounted for in the instructions when completing your return. If you are a fiscal year filer, you should consult this info sheet from IL, which will help with your filing for this year. Lastly, if you are required to make estimated payments, any estimates made after July 1, 2017 should account for the increase in rates.

 

Indiana

Effective January 1, 2017, the Indiana individual income tax rate is reduced from 3.3% to 3.23%.

 

Kansas

The Sunflower State enacted a new law on June 27, 2017, but will be retroactive to January 1, 2017. The new law creates new brackets and rates for individuals and eliminates tax breaks for individuals with income from pass-through entities. Your employer should have implemented changes in your withholding, beginning in July, to account for the retroactive change.

The new brackets and rates are as follows:

Rate Single Filers MFJ Filers
2.9% Income up to $15,000 Income up to $30,000
4.9% $15,001 to $30,000 $30,001 to $60,000
5.2% Income over $30,000 Income over $60,000

 

In 2012, Kansas passed a law that would eliminate any tax on income from a pass-through entity, such as a partnership, LLC, or S-Corporation to an individual. Thus, taxpayers were not paying any tax on income earned by their pass-through entities.

In 2017, this exemption has been eliminated. Going forward, taxpayers will pay tax on their income from pass-through entities using the applicable rates described above.

 

Tennessee

Beginning January 1, 2017, the Tennessee income tax rate will be reduced by 1% annually.  The rate for 2017 subsequently reduced from 5% to 4%.

 

Ohio

Effective as of January 1, 2017, Ohio has eliminated their two lowest tax brackets of .5% and .99% for income under $10,500. The new rates and brackets are as follows:

Rate Income Bracket
1.980% $10,500 – $15,800
2.476% $15,801 – $21,100
2.969% $21,101 – $42,100
3.465% $42,101 – $84,200
3.960% $84,201 – $105,300
4.597% $105,301 – $210,600
4.997% $210,601 and over

 

2018 And Beyond: Taxes By State

Delaware: the estate tax will be eliminated beginning in 2018

Hawaii: three top marginal tax rates will be added beginning in 2018:

  • for individuals and MFS taxpayers (not surviving spouses or HoH) 9% for income over $150k, 10% for income over $175k, and 11% for income over $200,000;
  • for MFJ and surviving spouse 9% for income over $300,000, 10% for income over $350,000 and 11% for income over $400,000;
  • and HoH 9% for income over $225,000, 10% for income over 262,500, and 11% for income over $300,000.

Kansas: the rates outlined above will increase to 3.1%, 5.25%, and 5.7% respectively.

New York: in 2018 the rate for taxpayers is reduced from 6.45% to 6.33% for the $21,400 to $80,650 tax bracket (MFS and Single rates are used for illustration) and from 6.65% to 6.57% for the $80,650 to $215,400 tax bracket.

  • In 2019, for the same tax brackets, the rate is reduced to 6.21% and 6.49%.
  • In 2020, for the same tax brackets, the rate is reduced to 6.09% and 6.41%.
  • In 2021, for the same tax brackets, the rate is reduced to 5.97% and 6.33%.
  • In 2022, for the same tax brackets, the rate is reduced to 5.85% and 6.25%.
  • In 2023, for the same tax brackets, the rate is reduced to 5.73% and 6.17%.
  • In 2024, for the same tax brackets, the rate is reduced to to 5.61% and 6.09%.

For 2025 and beyond, these tax brackets will have a tax rate of 5.50% and 6.00% respectively.

New Hampshire: Business tax rates will be reduced for the BPT and BET beginning in 2019. The rates will reduce to 7.9% for the BPT and .675% for the BET for 2019. In 2020, they will reduce farther to 7.7% and .6%, respectively. They are scheduled to dip again in 2022 to 7.5% and .5%.

North Carolina: Effective January 1, 2019, the individual income tax rate will reduce from 5.499% to 5.25%.

Tennessee: Effective January 1, 2018 the individual income tax rate will be reduced from 4% to 3%.  Effective January 1, 2019 the individual income tax rate will be reduced from 3% to 2%.  Effective January 1, 2020 the individual income tax rate will be reduced from 2% to 1%.

Full repeal of the Tennessee individual income tax will happen starting January 1, 2021.

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Monica Welsh

Monica Welsh

The Tax Institute, H&R Block

Monica is a tax research analyst in the Tax Institute. She specializes in the areas of business and investment. Monica is a graduate of the University of Missouri-Kansas City School of Law with a JD and an LLM in tax.