On April 18, 2016, the Mississippi Legislature passed Senate Bill 2858 and enacted the “Taxpayer Pay Raise Act of 2016.” Lieutenant Governor Tate Reeves describes the Act as the largest tax relief package in Mississippi history. The changes made by the Act are estimated to save Mississippians $415 Million in income taxes over 10 years. At this writing, Governor Phil Bryant has not signed the Act into law, but he is expected to do so shortly. The following paragraphs summarize the changes made by the Act.
Repeal of Corporate Franchise Tax. Mississippi currently imposes a franchise tax against corporations at the rate of $2.50 per $1,000 of taxable capital. Beginning in 2018, the first $100,000 of taxable capital is immediately exempted from the franchise tax, which will have the effect of exempting many small corporate taxpayers from the franchise tax in that year and thereafter. Then, beginning in 2019, the Act reduces the tax rate by 25 cents per year until the franchise tax is fully repealed from and after January 1, 2028.
Deduction for Self-employment Taxes Paid. Federal income tax law currently allows self-employed individuals to deduct 50% of their self-employment tax liability in computing their federal income tax liability. Mississippi currently has no corresponding income tax deduction. The Act allows self-employed Mississippi taxpayers to deduct a portion of their federal self-employment tax liability in computing Mississippi taxable income. The deduction will be equal to 17% of the federal self-employment tax liability in 2017, 34% in 2018 and 50% for 2019 and subsequent tax years.
Elimination of 3% Income Tax Bracket. Mississippi currently has three tax brackets for imposing its income tax against individuals and corporations. It imposes income tax at the rate of 3% on the first $5,000 of taxable income, 4% on the second $5,000 of taxable income and 5% on taxable income in excess of $10,000. The Act phases out the 3% income tax bracket ratably over five years, beginning in 2018. For calendar year 2022 and all subsequent years, the 4% and 5% rates will continue to apply to taxable income in excess of $5,000 and $10,000, respectively.
Please call Butler Snow’s SALT attorneys if you have questions about these Mississippi income tax changes.