Missouri House bill would exempt federal unemployment payments from state tax

(The Center Square) – About 300,000 Missourians collected more than $3 billion in federal Pandemic Unemployment Assistance (PUA) provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act before it expired in July.

That assistance – as well as PUA and other aid provided by August’s Lost Wages Assistance (LWA) package and December’s Consolidate Appropriations Act – is counted as taxable income under Missouri law.

“It is important to note that both state and federal unemployment benefit payments are taxable,” The Missouri Department of Labor and Industrial Relations (DLIR) notes in instructions for PUA recipients to complete the IRS’s Tax Form 1099-G.

House Budget Committee Chairman Cody Smith, R-Carthage, is calling on lawmakers to waive the state income tax of unemployment payments.

Smith on Feb. 11 filed House Bill 991. Under the seven-page bill, federal stimulus checks related to COVID would be exempt from the state’s income tax.

“This legislation would waive that personal income tax not only on the most recent round of stimulus related to COVID-19, but on anything going forward related to this pandemic specifically,” Smith told Missourinet Radio, adding he is “very optimistic” the measure will find bipartisan traction.

Smith said, in essence, those who receive federal assistance are not getting something for nothing but only getting back what they – or taxpayers in general – have already contributed.

“They’ve either already paid these tax dollars or will pay them in the future, and they shouldn’t be taxed again on these stimulus checks especially in a time of need if they can put the money to better use,” Smith said.

HB 991 has been referred to the House Ways & Means Committee. As of Monday afternoon, a Senate companion has not surfaced.

Another House bill that would benefit PUA recipients — or, at least, about 46,000 of them in Missouri — has advanced through one committee and awaits a hearing before the chamber’s Ways & Means Committee.

Missouri overpaid about 46,000 people more than $150 million in unemployment benefits in 2020 and the DLIR and Gov. Mike Parson want the money back.

HB 1035, filed by Rep. Doug Clemens, D-St. Ann, would allow those overpaid to not be punished for the state’s mistake and require the DLIR “to waive non-fraudulent overpayments of federally supported unemployment benefits.”

During a three-hour hearing on HB 1035 before the House Special Committee on Government Oversight last week, the bill garnered bipartisan support despite testimony from DLIR Director Anna Hui who said it is standard practice to request those overpaid return the money.

Republican leaders in the statehouse entered the legislative session committed to relieving financial pressures on those affected by the pandemic. Overpayments were among those issues.

“It’s an issue and we need to work through it,” Senate Majority Leader Caleb Rowden, R-Columbia, told the St. Louis Post-Dispatch in January, adding he doubts the state will recover the vast majority of the money even with the most lenient of payment plans.

“If it’s what we think it looks like,” he said, “the state’s probably going to have to eat it.”

But Parson sees it differently and last week, reiterated if lawmakers adopt HB 1035, he may not sign it into law and favored a payment plan proposal forwarded by Hui.

“If there’s a mistake made on both sides there ought to be some mutual understanding of how we make up that difference,” he said.

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