5% flat tax affects more Utahns than expected

Many are actually paying more following the income tax reform

Published: Tuesday, March 31, 2009 1:06 a.m. MDT
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Most Utahns are paying less state personal income tax on their 2008 earnings, a review by the Deseret News shows.

But because of several miscalculations, many are not easily seeing those tax cuts. Worse, it appears that more Utahns than were originally believed are actually paying more tax following the 5 percent flat-rate income tax reform that fully kicked in last year.

And that is leading to increased grumbling by a number of Utahns as the April 15 income tax filing deadline looms.

Because the State Tax Commission instituted less-than-accurate withholding tables in January 2008, not enough money was withheld from paychecks. Thus, the impact of the new 5 percent flat-rate tax is different than originally believed, with many Utahns seeing a smaller tax refund or even taxes due as they prepare their 2008 income taxes.

And there are groups of Utahns, some higher-middle income or wealthy, that appear to be actually paying more. Many retired people are also seeing higher taxes, several tax preparers told the newspaper, due to the switch from a retired deduction to a retired tax credit under the new system.

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Taken all together, even those who seek a citizen initiative to change the new flat-rate system to a traditional, progressive-bracket income tax plan, say those making less than $50,000 a year are seeing state income tax cuts. And some of those are seeing reductions of 10 percent or more.

"But there are those, like around 18 percent of all taxpayers, who are seeing tax increases, some significant, like more than 10 percent," said Doug Macdonald, a former Utah Tax Commission economist who says the new flat-rate system still needs some tweaking.

"We were told that only a few people would pay more. It was like selling a used car — those pushing the change (to a flat-rate tax) only talked about the good parts of the car, not the bad parts.

"Our examination shows that between 150,000 to 360,000 people (out of 1.2 million taxpayers) will actually pay more under the new system," said Macdonald.

Tax Commission spokesman Charlie Roberts said sometime this summer the commission should have hard data on those who saw tax cuts and tax increases in 2008, the first year of the new system.

Local tax expert and certified public account Keith Prescott, who was an early supporter of the flat-rate income tax, says his clientele this year are not displeased with the new system.

Prescott, head of the state's Tax Review Commission, was a close adviser to Gov. Jon Huntsman Jr. during the governor's drive to make Utah's personal income tax system more fair, broader-based and easier to understand and prepare.

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