Are $500 Tax Rebates on the Way?

One of the few bright spots of this year’s otherwise underwhelming legislative session was the legislature’s decision to send Missourians back some of their hard-earned tax dollars via income tax rebate. Now that the bill(s) have been sent to the governor for his signature, many taxpayers likely have questions about how the rebates will work.

What are they? Approved in House Bill (HB) 2090 with funding included in the budget, the rebates are being issued as non-refundable income tax credits for the 2021 tax year. Individual filers are eligible to receive a credit of up to $500, and couples who file jointly can receive up to $1,000.

Who will get them? There are two major criteria for determining who will receive the income tax rebate. First, the rebate is a non-refundable credit, which means recipients must have paid income taxes in 2021 to qualify to receive any rebate. Second, the legislature placed an income cap on the rebate. For individuals, the cap is $150,000, and for those filing jointly, the cap is $300,000. If you earned more than the cap in 2021, you will not qualify for the rebate.

How much will they be? Perhaps the most confusing part of the legislature’s plan is determining how much each taxpayer will receive. Since it’s a non-refundable credit, a recipient can only receive up to the amount they paid in state income taxes in 2021, and no more. So, if you paid $50 in state income taxes, your rebate would only be $50. But for individuals who paid around $800 in state income tax, the maximum they could receive is $500.

One complicating factor here is that the legislature set aside exactly $500 million to pay for these rebates. While that sounds like a lot of money, the spending plan is structured in such a way that if Missouri’s Department of Revenue (DOR) determines that more people will qualify for the $500/$1,000 credit than can be paid for with $500 million, the department is authorized to lower the rebate payments to accommodate paying all those who qualify for the maximum rebate the same amount. Preliminary estimates suggest that this downward adjustment in rebates is extremely likely and may result in maximum rebates as low as somewhere in the $300 range, but we won’t know the exact number until DOR completes its analysis of the state’s 2021 tax filings.

When will we get them? While the ultimate date remains uncertain, I’d recommend taxpayers start checking their bank accounts and/or mailboxes in late 2022 for the money. Because of the provision allowing the size of the rebates to be lowered, the DOR will need to finish processing all 2021 filings, which can’t occur until after the tax filing extension deadline of October 17th. During debate on the bill, one legislator expressed wishful thinking that the department would be able to complete the process by the end of the calendar year. The money in the budget for the rebates is approved through June 30, 2023, so the rebates will at least be distributed by then.

Taxpayers are always going to be better spenders of their tax dollars than the government, and I’m glad the legislature decided to give some money back this year. But as is often the case with the government and rebates, the process of getting your money back can be quite complicated. For now, when someone asks if they’ll be receiving $500 in tax rebates, the best I can do is answer “Maybe.”