SB 435

Individual income tax rate

This bill decreases the individual income tax rate in the third tax bracket from

5.3 percent to 4.40 percent beginning with the 2023 tax year.

Under current law, there are four income tax brackets for single individuals,

certain fiduciaries, heads of households, and married persons, and the brackets are

indexed for inflation. The rate of taxation under current law for the lowest bracket

for single individuals, certain fiduciaries, heads of households, and married persons

is 3.50 percent of taxable income. The rate for the second bracket is 4.40 percent.

The rate for the third bracket is 5.3 percent. And the rate for the highest bracket is

7.65 percent. Before bracket indexing, the four brackets for individuals, certain

fiduciaries, and heads of households, to which the above rates apply, are as follows:

1) taxable income from $0 to $7,500; 2) taxable income exceeding $7,500 but not

exceeding $15,000; 3) taxable income exceeding $15,000 but not exceeding $225,000;

and 4) taxable income exceeding $225,000.

Retirement income subtraction

This bill increases and expands the individual state income tax subtraction for

payments or distributions received from qualified retirement plans under the

Internal Revenue Code or from certain individual retirement accounts. Under the

bill, beginning in tax year 2023, up to $100,000 of payments or distributions received

from qualified retirement plans or certain individual retirement accounts may be

subtracted annually from an individual's taxable income, if the individual is at least

67 years of age. If the individual and individual's spouse are both at least 67 years

of age, the sum of the amount that the couple may subtract annually from their

combined taxable income may not exceed $150,000.

Under current law, up to $5,000 of payments or distributions received by

certain individuals from qualified retirement plans or from certain individual

retirement accounts may be subtracted. To be eligible, the individual must be at least

65 years old and have federal adjusted gross income under $15,000, or under $30,000

if married.

Because this bill relates to an exemption from state or local taxes, it may be

referred to the Joint Survey Committee on Tax Exemptions for a report to be printed

as an appendix to the bill.