Missouri Tax Reform: An Overview of the Changes

Missouri has enacted tax reform legislation designed to lower the tax burden on both individuals and businesses through phased-in rate reductions and structural adjustments. The changes are intended to affect the state’s economic landscape by altering how revenue is collected from personal and corporate income.

This legislative action introduces a multi-year plan with built-in mechanisms that tie future tax cuts to the state’s economic performance. The reform package addresses both the top rates of taxation and the tax liability of those with lower incomes.

Individual Income Tax Reductions

A central component of Missouri’s tax reform is the reduction of the top individual income tax rate. The top rate has been progressively lowered in recent years; effective January 1, 2025, the highest marginal rate is 4.7%. This change directly impacts the tax calculations for Missourians in the highest income bracket.

The reform also includes provisions for further, incremental rate reductions. These future cuts are not automatic but are tied to the state meeting specific revenue growth targets. As state revenues increase by a predetermined amount, additional rate reductions will be triggered, potentially lowering the top rate to an eventual floor of 4.5%.

A key feature of the individual tax changes is the complete elimination of the bottom income tax bracket. Previously, individuals paid tax on their first $1,000 of income, but this bracket has been removed. This change provides direct relief to low-income earners, as they will no longer have a state tax liability on that initial portion of their earnings.

This structural change simplifies the tax filing process for some. By removing the lowest tier of taxation, the reform provides a foundational level of tax reduction for every filer in the state.

Corporate Income Tax Adjustments

Alongside changes to individual taxes, the state has also addressed its corporate income tax, with the current rate at 4%. Future reductions in the corporate tax rate remain dependent on new legislative action rather than a pre-existing schedule, as a multi-year phase-out plan tied to automatic revenue triggers has not been enacted into law.

Implementation and Future Rate Triggers

The rollout of Missouri’s tax reform is governed by conditional triggers. The reductions in the top individual income tax rate have occurred in stages over several years. Subsequent changes are not set by a fixed calendar but are dependent on the state’s financial performance.

The implementation plan relies on revenue triggers. For future individual tax rate reductions to occur, the state’s net general revenue collections must increase by a specified amount over the highest amount collected in any of the three previous fiscal years. This ensures tax cuts are only implemented during periods of solid economic growth. Once this trigger is met, the next scheduled rate reduction is automatically implemented for the following calendar year.

This performance-based system applies to the individual income tax phase-down. Each time the revenue trigger is met, the top income tax rate will be reduced by a specified increment until it reaches the floor of 4.5%. The conditional nature of these cuts means the full implementation of the tax reform could take several years.