A law enacted Tuesday to conform Maine’s tax code to the federal code includes new benefits for the state’s lowest wage earners.
Passage of the law was prompted by Republican-led changes to the federal tax code approved by Congress in December. Those changes included the elimination of the personal exemption coupled with a near-doubling of the standard deduction. The overall change to federal law is expected to save most taxpayers money, with the biggest savings for businesses and high earners.
One significant component of the state tax code is that it retains Maine’s personal exemption for taxpayers despite the recent elimination of the federal personal exemption.
The first $4,150 of income for individuals and the first $8,300 of income for joint filers will remain exempt from state income taxes under the new law. In addition, Maine’s three personal income tax brackets of 5.8 percent, 6.75 percent and 7.15 percent remain largely unchanged.
The law also aligns Maine’s standard deduction to the federal amount. The federal standard deduction amounts in 2017 were $6,350 for single taxpayers and married couples filing separately, $9,350 for heads of household and $12,700 for married couples filing jointly and surviving spouses. For 2018, the standard deduction amounts have increased to $12,000 for individuals and married couples filing separately, $18,000 for heads of household and $24,000 for married couples filing jointly and surviving spouses.
House Republican Leader Ken Fredette, R-Newport, said it was important to pass a tax conformity law so Maine taxpayers, businesses and regulators did not have to maintain different accounting systems for state and federal taxes.
“The bigger issue is that there’s the $75 million in tax relief to individuals and small businesses over the next four years,” Fredette said. “We’ve always conformed, and we’ve pushed consistently for income tax cuts, and so this is consistent with the work that Republicans have done to continue that hard work.”
NEW AND LARGER TAX CREDITS
Other key components of the compromise tax deal include a new child and dependent tax credit for parents and caretakers of dependents. It establishes a new tax credit of $500 for each qualifying child or dependent for whom the taxpayer claims the federal credit.
The law also increases the maximum amount of the state’s property tax fairness credit, from $900 to $1,200 for residents age 65 and over, and from $600 to $750 for residents under age 65.
It also retains all of the existing corporate tax brackets for Maine corporations. However, it adds some new tax incentives for businesses, including a new credit for employers paying at least 50 percent of wages to employees for up to 12 weeks of family medical leave.
POLITICAL PARTIES COMPROMISE
The Maine legislation, a compromise deal that included a combination of provisions sought by Republican and Democratic lawmakers, was approved unanimously by the Legislature in August and became law Tuesday without Gov. Paul LePage’s signature.
The law does not include LePage administration proposals that would have doubled the estate tax exemption to $11.2 million and provided additional exemptions for out-of-state companies doing business in Maine.
The Legislature’s fiscal impact report estimates the changes will reduce general and special fund revenue by $4.7 million over the state’s previous fiscal year, which ended June 30. Estimated revenue reductions over subsequent fiscal years include $22.6 million in 2018, $20.9 million in 2019 and $28.4 million in 2020. That’s a total savings to individual and corporate taxpayers of roughly $76.6 million.
The tax conformity law will make it easier for Maine families and businesses to file their taxes, said Senate President Michael Thibodeau, R-Winterport. Had the Legislature not acted on tax conformity, all Maine taxpayers would have likely been required to file amended 2017 returns, and businesses would have had to keep two sets of books, one for federal taxes and another for state taxes, he said.
“I am very pleased that we were able to get this done for the people of Maine and for the state’s small businesses,” Thibodeau said in a written statement.
LARGE TAX INCREASE AVOIDED
Rep. Ryan Tipping, D-Orono, House chairman of the Taxation Committee, said the tax reform package supports the middle class, Maine-based businesses and property taxpayers. Tipping praised his Republican and Democratic colleagues for working across the aisle to get the compromise deal approved.
“Mainers want to see a fairer tax code, one that helps average people and those who are struggling,” he said. “Throughout the process, we kept our focus on conforming to the federal tax code where it benefits our state, not out-of-state business interests, and how we can help working families and the elderly make ends meet.”
Tipping said the compromise package rejected a $233 million tax increase on working-class Mainers that would have resulted from strictly conforming to last year’s changes to the federal tax code.
“Most of the benefits of last year’s federal tax overhaul went to the wealthy and large corporations,” he said. “What was most important to me was to reject that lopsided approach and instead make Maine’s middle class and working families our priority.”
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