The Missouri Department of Revenue issued its 2018 Employer's Tax Guide, reflecting the lower 5.9% maximum income tax withholding and supplemental withholding rate.

The Department however notes that due to the Tax Cuts and Jobs Act, further changes will be required to the state's income tax withholding worksheets and tables. It hopes to issue the revised 2018 income tax withholding tables sometime in February.

The Department had announced that it would delay issuing the 2018 state income tax withholding tables and formula until the IRS issued the 2018 federal income tax withholding tables.

Lower maximum withholding tax rate applies beginning in 2018

Legislation enacted in 2014 (SB 509) provided that the maximum state income tax rate would incrementally decrease by 0.1% each year for five years until the highest rate reaches 5.5%. The reductions would continue over a five-year period if certain circumstances are met. The bill also requires that the individual income tax brackets be adjusted each year for inflation. The earliest the reductions could begin would be for 2017.

No reduction will go into effect for a year unless the net general revenue collected in the previous fiscal year exceeds the amount of net general revenue in any one of the three fiscal years prior to such year by at least $150 million. This occurred during fiscal year 2017, so the decrease begins to go into effect as of January 1, 2018, reducing the maximum income tax rate from 6.0% to 5.9%.

The bill also provided for an increase in the income tax deductions for business income, to also be phased in over a period of years until it reaches 25%.

Annual standard deduction increases for 2018

The annual standard deduction amounts for 2018 are as follows:

— Single: $6,500

— Married and spouse works: $6,500

— Married and spouse does not work: (this is determined by the check box on Form MO W-4, Line 2, and is not a separate filing status): $13,000

— Head of household: $9,550

The Form MO W-4  allowances continue to be:

— Single or married and spouse works: $2,100 for the first allowance and $1,200 for each additional allowance.

— Married and spouse does not work: $2,100 for the first allowance, $2,100 for the second allowance (for the non-working spouse) and $1,200 for each additional allowance

— Head of household: $3,500 for the first allowance and $1,200 for each additional allowance thereafter.

For the 2018 withholding tax formula, go to pages 16-17 of the guide.

Supplemental Wages

The 2018 supplemental rate of income tax withholding is 5.9%, down from 6%.

If supplemental wages are paid (such as bonuses, commissions, severance pay, overtime pay, back pay, including retroactive wage increases, or reimbursements for nondeductible moving expenses) in the same payment with regular wages, withhold Missouri income tax as if the total of the supplemental and regular wages were a single wage payment for the regular payroll period.

If supplemental wages are paid in a payment separate from regular wages, the method of withholding Missouri income tax depends in part on whether you withhold income tax from the employee's regular wages. If you withhold Missouri income tax from the employee's regular wages, you may choose one of two methods for withholding income tax on the supplemental wages:

1. Withhold a flat percentage rate of 5.9% of the supplemental wages, using zero withholding allowances; or

2. Add the supplemental wages to the regular wages paid to the employee within the same calendar year for the payroll period and determine the income tax to be withheld as if the aggregate amount were one payment. Subtract the tax already withheld from the regular wage payment and withhold the remaining tax from the supplemental wage payment.

Form W-2 deadline accelerated to January 31 effective for tax year 2017 for large employers

As previously reported, employers filing 250 or more Forms W-2 must file calendar year 2017 Forms W-2 and MO-W-3, Transmittal of Tax Statements, electronically by January 31, 2018. Filing on magnetic media is no longer allowed for these employers. (2017 Missouri employer reporting of W-2s instructions and specifications handbook.)

Employers filing less than 250 calendar year 2017 Forms W-2 have until February 28, 2018 to file on paper, CD, flash drive or electronically. The law change that accelerates the due date to January 31, 2018, applies only to large employers filing 250 or more Forms W-2.

Employers failing to file using the correct method (i.e., electronically for those with 250 or more employees) or by the correct due date may incur a penalty of $2 per W-2 not filed correctly or timely, not to exceed $1,000. This penalty applies unless an extension of time is granted or it is shown that such failure is due to reasonable cause.?

Employers must register to file Form W-2 electronically with the Department.

For more information, see the Department's website.

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