COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:1155S.01I Bill No.:SB 371 Subject:Taxation and Revenue - Income Type:Original Date:March 17, 2025Bill Summary:This proposal creates an income tax deduction for certain dependents.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND AFFECTEDFY 2026FY 2027FY 2028
General Revenue*
$0
Could exceed
($7,714,670)
Could exceed
($7,523,299)
Total Estimated Net
Effect on General
Revenue $0
Could exceed
($7,714,670)
Could exceed
($7,523,299)
*Oversight notes for the purpose of the fiscal note, Oversight assumes a top income tax rate of
4.7% in tax year 2025 (FY 2026) and future income tax rate reductions from SB 3 (2022) will
trigger consecutively (4.6% in FY 2027 and 4.5% in FY 2028+).
ESTIMATED NET EFFECT ON OTHER STATE FUNDSFUND AFFECTEDFY 2026FY 2027FY 2028Total Estimated Net
Effect on Other State
Funds $0$0$0
Numbers within parentheses: () indicate costs or losses. L.R. No. 1155S.01I
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ESTIMATED NET EFFECT ON FEDERAL FUNDSFUND AFFECTEDFY 2026FY 2027FY 2028Total Estimated Net
Effect on All Federal
Funds $0$0$0
ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)FUND AFFECTEDFY 2026FY 2027FY 2028General Revenue -
DOR 0 FTE1 FTE1 FTE
Total Estimated Net
Effect on FTE0 FTE1 FTE1 FTE
☒ 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 2026FY 2027FY 2028Local Government$0$0$0 L.R. No. 1155S.01I
Bill No. SB 371
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FISCAL ANALYSIS
ASSUMPTION
Section 143.161 - Deduction for Certain Dependents
Officials from the Office of Administration - Budget and Planning (B&P) note starting tax
year 2026, this proposal would grant a $2,400 tax deduction for each qualifying dependent in the
year a woman gives birth. The deduction shall only be granted for children that the taxpayer is
eligible to receive the federal dependent deduction. The taxpayer cannot claim this deduction
and the deduction under subdivision 1 (dependent deduction – live births) or subdivision 3
(stillbirth deduction).
B&P notes that this proposal would only grant the taxpayer who has given birth the deduction.
Therefore, male or female spouses/partners cannot claim this deduction. This would prevent a
married couple from claiming the deduction if only the non-birthing parent has income.
B&P notes that subdivision 3 prevents a taxpayer from claiming this deduction and the
dependent or stillbirth deductions. B&P further notes that per the federal Tax Cut and Jobs Act
(TCJA, 2017), the federal dependent deduction is set at $0. In addition, HB 2540 (2018)
clarified that as long as the federal deduction is set at $0, there is no Missouri dependent or
stillbirth deduction allowed. However, the TCJA is set to expire for tax year 2026 unless
reauthorized by Congress. B&P notes that taxpayers would choose this deduction in years that
they qualify as the dependent and stillbirth deductions are $1,200 for each qualifying child, while
this deduction is $2,400 for each qualifying child.
Based on data published by DHSS, on average there were 70,577 live births from 2018-2022.
Therefore, B&P estimates that this proposal could exempt approximately $169,384,320 (70,577
x $2,400). However, deductions 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). Table 1 shows the
estimated impact by year.
Table 1: Estimated Revenue Loss by Fiscal YearTax Year (Fiscal Year)Tax
Rate
2026 (FY27)2027 (FY28)2028 (FY29)2029 (FY30)4.7%($7,961,063)($7,961,063)($7,961,063)($7,961,063)4.6%($7,791,679)($7,791,679)($7,791,679)($7,791,679)4.5% ($7,622,294)($7,622,294)($7,622,294) L.R. No. 1155S.01I
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Therefore, B&P estimates that this provision could reduce TSR and GR by $7,961,063 (top tax
rate 4.7%) or by $7,791,679 (top tax rate 4.6%) in FY27. Once SB 3 (2022) has fully
implemented, this proposal could reduce TSR and GR by $7,622,294 annually.
Officials from the Department of Revenue (DOR) note Currently in statutes a person is allowed
an individual income tax deduction ($1,200) for the following
143.161.1 a dependency deduction
143.161.2 a head of household deduction
143.161.3 a stillbirth exemption.
In December of 2017, the Tax Cuts and Jobs Act passed at the federal level set the dependency
deduction at zero. HB 2540 adopted in 2018, by the Missouri General Assembly, added
language to Missouri’s dependency deduction that makes the state deduction zero if the federal
deduction is zero. Because of the language of HB 2540, Missouri’s dependent deduction went to
zero in 2018.
This proposal attempts to create another deduction (Section 143.161.4). This would allow a
taxpayer to claim a deduction in a year in which the taxpayer gives birth to a child. The
deduction would be $2,400 for each child for which the taxpayer is entitled to a dependency
exemption even if the dependency exemption is zero. Therefore in 2024, a woman who gives
birth to a child would be eligible to receive a $2,400 deduction for that child.
The Department notes that over the last three years the average number of children born in
Missouri was 69,009 a year. Which would result in $165,621,600 ($2,400 deduction * 69,009
kids) being taken in deductions annually. A deduction is not a dollar-for-dollar reduction of
revenue but is based on that tax rate in effect at the time. This proposal states it is to begin with
tax years 2026 and the estimated tax rate for 2025 is 4.7% and it is estimated to remain at the
4.7% for 2026. Therefore, this would result in a loss to general revenue of $7,784,215
($165,621,600 * .047) starting in FY 27 when the first returns are filed claiming the credit.
It should be noted that per SB 3 (2022) the tax rate is scheduled to drop in future years. The
amount of revenue loss would depend on the tax rate at that time.
Tax
Rate
2026 (FY
27)2027 (FY 28)2028 (FY 29)
2029 (FY
30)
4.70%($7,784,215)($7,784,215)($7,784,215)($7,784,215)4.60% ($7,618,594)($7,618,594)($7,618,594)4.50% ($7,452,972)($7,452,972) L.R. No. 1155S.01I
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This would be a new deduction that would need to be added to the MO-1040 MO-104A, and the
MO-1120 ($2,200 each), to the department’s website and to the department’s individual income
tax computer filing system ($7,327). These changes are estimated at $9,527. Additionally, to
prevent fraud, DOR would require information on the children being claimed such as name and
social security number. This would require the creation of a new form estimated at $10,000.
DOR assumes the department would need at least one Associate Customer Service
Representative ($37,020) for processing these returns. Should errors or correspondence be
generated to require additional FTE DOR would seek those FTE through the appropriation
process.
1 FTE Associate Customer Service Rep for every 14,700 errors created
1 FTE Associate Customer Service Rep for every 5,700 pieces of correspondence generated.
Oversight notes this proposal begins January 1, 2026, and the tax returns claiming the deduction
would be filed starting in FY 2027.
Oversight assumes the Department of Revenue is provided with core funding to handle a certain
amount of activity each year. However, given the number of returns which might be affected
Oversight will show the abovementioned 1 FTE for purposes of this fiscal note. If multiple bills
pass which require additional staffing and duties at substantial costs, DOR could request funding
through the appropriation process.
However, Oversight notes the first tax year in which taxpayers would qualify for the
new/expanded tax deduction(s) is Tax Year 2026. Oversight notes individuals would not file
their Tax Year 2026 tax returns until after January 1, 2027 (6 months after the beginning of
Fiscal Year 2027). Therefore, Oversight will report DOR’s administrative cost(s) beginning in
Fiscal Year 2027 assuming DOR can hire and train such FTE(s) within the first six (6) months of
Fiscal Year 2027; before Tax Year 2026 tax returns would begin to be filed claiming the
new/expanded tax deductions.
Oversight notes officials from B&P and DOR both assume the proposal will have a direct fiscal
impact on state revenues. Oversight does not have any information to the contrary. Therefore,
Oversight will reflect DOR’s estimated impact in the fiscal note.
Oversight notes for the purpose of the fiscal note, Oversight assumes a top income tax rate of
4.7% in tax year 2025 (FY 2026) and future income tax rate reductions from SB 3 (2022) will
trigger consecutively (4.6% in FY 2027 and 4.5% in FY 2028+).
FISCAL IMPACT – State GovernmentFY 2026
(10 Mo.)
FY 2027FY 2028GENERAL REVENUE FUND L.R. No. 1155S.01I
Bill No. SB 371
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FISCAL IMPACT – State GovernmentFY 2026
(10 Mo.)
FY 2027FY 2028Costs - DOR - §143.161 Personal Service$0($37,760)($38,516) Fringe Benefits$0($30,926)($31,229) Exp. & Equip.$0($27,390)($582)
Total Costs -$0($96,076)($70,327)
FTE Change0 FTE1 FTE1 FTERevenue Reduction - §143.161 - Born
Child Income Tax Deduction $0
Could exceed
($7,618,594)
Could exceed
($7,452,972)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND$0
Could exceed
($7,714,670)
Could exceed
($7,523,299)
Estimated Net FTE Change on General
Revenue0 FTE1 FTE1 FTE
FISCAL IMPACT – Local GovernmentFY 2026
(10 Mo.)
FY 2027FY 2028$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
Current law authorizes a taxpayer to claim a $1,200 exemption for each dependent for whom
such taxpayer is entitled to a dependency exemption for federal tax purposes, provided such
federal exemption is not equal to $0. This act authorizes a taxpayer to claim a $2,400 exemption
during the tax year in which a taxpayer gives birth to a child for which the taxpayer is entitled to
a dependency exemption for federal tax purposes, regardless of whether the federal exemption is
equal to $0.
This legislation is not federally mandated, would not duplicate any other program and would not
require additional capital improvements or rental space.
SOURCES OF INFORMATION
Department of Revenue L.R. No. 1155S.01I
Bill No. SB 371
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Office of Administration - Budget and Planning
Julie MorffJessica HarrisDirectorAssistant DirectorMarch 17, 2025March 17, 2025