COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:5498H.01I Bill No.:HB 2657 Subject:Taxation and Revenue - General; Taxation and Revenue - Income; Department of
Revenue; Retirement Systems and Benefits - General
Type:Original Date:February 23, 2024Bill Summary:This proposal modifies provisions relating to income tax deductions for
private pensions.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND AFFECTEDFY 2025FY 2026FY 2027General Revenue*$0($110,611,154)($108,257,725)Total Estimated Net
Effect on General
Revenue $0($110,611,154)($108,257,725)
* Oversight assumes a top income tax rate of 4.8% in tax year 2024 (FY 2025) and future
income tax rate reductions from SB 3 (2022) will trigger consecutively (4.7% in FY 2026, 4.6%
in FY 2027, and 4.5% in FY 2028+).
ESTIMATED NET EFFECT ON OTHER STATE FUNDSFUND AFFECTEDFY 2025FY 2026FY 2027Total Estimated Net
Effect on Other State
Funds $0$0$0
Numbers within parentheses: () indicate costs or losses. L.R. No. 5498H.01I
Bill No. HB 2657
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ESTIMATED NET EFFECT ON FEDERAL FUNDSFUND AFFECTEDFY 2025FY 2026FY 2027Total Estimated Net
Effect on All Federal
Funds $0$0$0
ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)FUND AFFECTEDFY 2025FY 2026FY 2027Total Estimated Net
Effect on FTE 000
☒ Estimated Net Effect (expenditures or reduced revenues) expected to exceed $250,000 in any
of the three fiscal years after implementation of the act or at full implementation of the act.
☐ Estimated Net Effect (savings or increased revenues) expected to exceed $250,000 in any of
the three fiscal years after implementation of the act or at full implementation of the act.
ESTIMATED NET EFFECT ON LOCAL FUNDSFUND AFFECTEDFY 2025FY 2026FY 2027Local Government$0$0$0 L.R. No. 5498H.01I
Bill No. HB 2657
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FISCAL ANALYSIS
ASSUMPTION
Section 143.124 Private Pension Income Tax Deduction
Officials from the Department of Revenue (DOR) note currently, some taxpayers who receive
a private pension are allowed to subtract a portion of the pension from their Missouri adjusted
gross income when determining taxable income. Those eligible for the subtraction must have
income under $25,000 for a single, head of household or qualified widow(er), under $32,000 for
married filing combined filers and under $16,000 for those married but filing separately. The
subtraction allows for the first $6,000 of the pension for individual filers and $12,000 for married
filing combined filers.
This proposal will raise the $6,000 to $12,000 for all filers. Additionally, this proposal raises the
income limits for individual filers from $25,000 to $50,000, for married filing combined filers
from $32,000 to $64,000 and for those married filing separate filers from $16,000 to $32,600.
These changes are expected to lower these filers MAGI.
In order to determine the fiscal impact, the Department used its internal Income Tax Model that
contains confidential taxpayer data from tax year 2021 (the most complete year available). DOR
notes that currently taxpayers report $123,086,008,997 in taxable private pension income.
Accounting for the changes outlined in the proposal, this could result in a another
$2,353,428,811 in private pension income being eligible for the subtraction.
Note that subtractions do not reduce revenues on a dollar-for-dollar basis, but rather in
proportion to the top tax rate applied. SB 3(2022) is allowing the individual income tax rate to
decrease over a period of several years. Therefore, DOR will show the impact of this proposal
with each expected rate drop.
Table 1: Estimated Revenue Loss by Fiscal YearTax Year (Fiscal Year)Tax
Rate
2025 (FY26)2026 (FY27)2027 (FY28)2028 (FY29)4.8%($112,964,583)($112,964,583)($112,964,583)($112,964,583)4.7%($110,611,154)($110,611,154)($110,611,154)($110,611,154)4.6% ($108,257,725)($108,257,725)($108,257,725)4.5% ($105,904,296)($105,904,296)
This proposal states that these changes will begin January 1, 2025, and therefore will not impact
state revenue until the first tax returns are filed in January 2026 (FY 2026).
This proposal will require DOR to modify the department’s MO-A and MO-1040 forms
($7,138), the department’s website and individual income tax computer programming system
($1,785). These items are estimated to cost $8,923. L.R. No. 5498H.01I
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Oversight assumes the Department of Revenue is provided with core funding to handle a certain
amount of activity each year. Oversight assumes DOR could absorb the administrative costs
related to this proposal. If multiple bills pass which require additional staffing and duties at
substantial costs, DOR could request funding through the appropriation process.
Officials from the Office of Administration - Budget and Planning (B&P) note currently
taxpayers may subtract $6,000 of their individual retirement income, if their Missouri Adjusted
Gross Income (MAGI) is less than $25,000 for taxpayers filing single or head of household and
$32,000 for married filing combined taxpayers. B&P notes that these private pensions include
IRAs, 401(k) plans, private pensions, annuities, and self-employed (Keogh) plans.
This proposal would allow taxpayers to subtract $12,000 of their retirement income, if their
MAGI is less than $50,000 for individuals and $64,000 for married filing combined taxpayers,
beginning tax year 2025.
Based on tax year 2021 data, the most recent complete year available, Missouri taxpayers
reported $123,086,008,997 in taxable private pension income. However, as noted above
taxpayers with MAGI below the current thresholds are already allowed a deduction. Therefore,
B&P estimates that this proposal could exempt $2,353,428,811 in private pension income.
However, subtractions do not reduce revenues on a dollar-for-dollar basis, but rather in
proportion to the top tax rate applied. Therefore, B&P will show the estimated impacts
throughout the implementation of the tax rate reductions from SB 3 (2022). Consequently, B&P
estimates that exempting individual retirement arrangement payments could reduce TSR and GR
by $112,964,583 (top tax rate 4.8%) or by $110,611,154 (top tax rate 4.7%) in FY26. Once SB 3
(2022) has fully implemented, this provision could reduce TSR and GR by $105,904,296
annually.
Table 1: Estimated Revenue Loss by Fiscal YearTax Year (Fiscal Year)Tax
Rate
2025 (FY26)2026 (FY27)2027 (FY28)2028 (FY29)4.8%($112,964,583)($112,964,583)($112,964,583)($112,964,583)4.7%($110,611,154)($110,611,154)($110,611,154)($110,611,154)4.6% ($108,257,725)($108,257,725)($108,257,725)4.5% ($105,904,296)($105,904,296)
Oversight notes both DOR and B&P’s estimates include data from DOR and B&P’s internal
Income Tax Model.
Oversight notes that it does not currently have the resources and/or access to state tax data to
produce a thorough independent revenue estimate and is unable to verify the revenue estimates
provided by B&P and DOR. Therefore, for the purpose of this fiscal note, Oversight will utilize
B&P’s estimated impact for this proposal. L.R. No. 5498H.01I
Bill No. HB 2657
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Oversight notes for the purpose of the fiscal note, Oversight assumes a top income tax rate of
4.8% in tax year 2024 (FY 2025) and future income tax rate reductions from SB 3 (2022) will
trigger consecutively (4.7% in FY 2026, 4.6% in FY 2027, and 4.5% in FY 2028+).
FISCAL IMPACT – State GovernmentFY 2025
(10 Mo.)
FY 2026FY 2027GENERAL REVENUE FUNDRevenue Reduction - §143.124 - Private
Pension Income Tax Subtraction $0($110,611,154)($108,257,725)
ESTIMATED NET IMPACT ON
GENERAL REVENUE FUND$0($110,611,154)($108,257,725)
FISCAL IMPACT – Local GovernmentFY 2025
(10 Mo.)
FY 2026FY 2027$0$0$0
FISCAL IMPACT – Small Business
No direct fiscal impact to small businesses would be expected as a result of this proposal.
FISCAL DESCRIPTION
This bill increases an individual's income tax adjustments related to private pensions in the
following manner:
(1) Single, Head of Household -- increases from $25,000 to $50,000;
(2) Married Filing Combined -- increases from $32,000 to $64,000; and
(3) Married Filing Separate -- increases from $16,000 to $32,600
This bill increases the maximum amount to be subtracted from a taxpayer's adjusted gross
income for tax years beginning on or after January 1, 2025, to the first $12,000 of any retirement
allowance received from any privately funded sources. The previous maximum was $6,000.
This legislation is not federally mandated, would not duplicate any other program and would not
require additional capital improvements or rental space. L.R. No. 5498H.01I
Bill No. HB 2657
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SOURCES OF INFORMATION
Department of Revenue
Office of Administration - Budget and Planning
Julie MorffRoss StropeDirectorAssistant DirectorFebruary 23, 2024February 23, 2024