You could call it the 2018 Utah Child Tax — a new levy imposed not by an act of the Legislature, but the lack of one. And it could cost most Utah families hundreds more next year, even as overall tax burdens decline under federal tax reform.

The 2018 Legislature approved a small income tax cut equal to a nickel on every $100 of income. That gave state lawmakers tax-cutting bragging rights heading into an election year even as it delivered only token tax relief to all but the state’s highest-paid residents.

But the Legislature’s failure to address the impact of federal reforms on the state taxpayer exemption means that most Utah families will have a higher state tax bill in 2018. Larger families will get hit harder, while the childless benefit.

This in a state that year after year happily leads the nation in average household size.

Federal reforms in 2017 eliminated the $3,038-per-dependent state tax exemption that helped lower tax bills for Utahns earning up to about $150,000. As a result, lower- and moderate-income households that benefited most from the tax credit will pay more in state tax.

At the same time, the nominal state income tax cut, from 5 percent to 4.95 percent, “disproportionately benefits high-income earners,” said Peter Reichard, president of the Utah Foundation, an independent policy group. That leaves the state with “a slightly less progressive [tax] structure … and Utah doesn’t have a strongly progressive structure to begin with,” he said.

Utah’s top earners account for the lion’s share of state income-tax revenue. The top 20 percent of filers, those earning about $98,000 or more, produce two-thirds of the total take. On an individualized basis, though, savings Utahns will see from the tax cut seems small: Someone earning $100,000 will take home just $50 more.

The tax impact from the loss of personal exemptions is far more substantial and uneven among different taxpayer groups.

For example, as the Utah Foundation describes in a post-session report, single Utahns or childless couples would see lower taxes while households with three or more children could see big increases. Households with five or more children could pay up to $600 more.

Here are some real-world situations taking both the tax cut and loss of exemptions into account:

  • A married, childless couple earning $50,000 would see a $25 income tax cut and a $313 increase in its tax credit. The total $338 savings is a 20 percent drop.
  • That same couple with three kids would lose $233 in state tax credits due to the loss of dependent exemptions. Counting its $25 income tax cut, its state tax bill would increase by $208, or close to 19 percent.

The Utah Legislature passed a 0.05 percent income tax cut this year but took no action on changes in federal tax law that eliminated personal deductions. The decision means most Utah taxpayers will pay more in state tax in 2019 even though their overall tax bills will be lower because of the federal cuts. The examples below show how married couples who file jointly might fare at different levels of income.

0 children,
$50K income,
standard deduction
3 children,
$50K income,
standard deduction
3 children,
$70K income,
standard deduction
5 children
(1 disabled),
$80K income,
standard deduction
(previously itemized)
4 children,
$140K income,
itemized deduction
(~20% of income)
State income tax cut (.05%) $25 $25 $35 $40 $70
State tax credit change, 2017 v 2018 $313 -$233 -$233 -$1,038 -$1,276
State tax bill change, dollars -$338 $208 $198 $998 $1,206
State tax bill change, percentage -20.3% 18.7% 8.3% 45.4% 22.0%
0 children, $50K income, standard deduction
  • State income tax cut (.05%): $25
  • State tax credit change, 2017 v 2018: $313
  • State tax bill change, dollars: -$338
  • State tax bill change, percentage: -20.3%
3 children, $50K income, standard deduction
  • State income tax cut (.05%): $25
  • State tax credit change, 2017 v 2018: -$233
  • State tax bill change, dollars: $208
  • State tax bill change, percentage: 18.7%
3 children, $70K income, standard deduction
  • State income tax cut (.05%): $35
  • State tax credit change, 2017 v 2018: -$233
  • State tax bill change, dollars: $198
  • State tax bill change, percentage: 8.3%
5 children (1 disabled), $80K income, standard deduction (previously itemized)
  • State income tax cut (.05%): $40
  • State tax credit change, 2017 v 2018: -$1,038
  • State tax bill change, dollars: $998
  • State tax bill change, percentage: 45.4%
4 children, $140K income, itemized deduction (~20% of income)
  • State income tax cut (.05%): $70
  • State tax credit change, 2017 v 2018: -$1,276
  • State tax bill change, dollars: $1,206
  • State tax bill change, percentage: 22.0%

Source: Tribune research

Federal tax reform raised the individual standard exemption to $12,000 from $6,350 in 2017. That means some moderate-income households that used to benefit from itemizing deductions will forgo itemizing and claim the standard exemption. They’ll still take a hit on state taxes.

For example, an $80,000-a-year family of seven with one disabled child might currently itemize deductions equal to about 20 percent of income and end up with a state tax bill of $2,200. Next year, that family will do better claiming the standard deduction. But they will lose $17,000 in other deductions, and their tax bill could jump by $1,000, or 45 percent.

Lawmakers knew all this back in January, when the state Tax Commission reported a potential $80 million windfall for the state thanks to federal tax changes and outlined the “average Joe” impacts. The cost of the income tax cut the Legislature eventually approved was about $55 million — an amount more than offset by that windfall.

But for about the same cost, lawmakers could have taken action to preserve the state personal exemption and pass along those savings to taxpayers — something that neighboring Idaho did this year by creating a state child tax credit.

House Bill 385 was such a bill. Introduced by first-termer Rep. Tim Quinn, R-Heber City, it didn’t even get out of committee, a victim of other priorities.

“I thought that bill was very nonpartisan. I thought it was very common-sense based,” Quinn said. “We thought this was a slam-dunk, no-brainer bill that would pass with support from both sides of the aisle, and we didn’t even get the light of day on it. I think it felt better to be able to say we lowered your income taxes.”

The Legislature’s act of omission is “particularly galling” given criticism sometimes aimed at subsidies that help working families cope, such as food assistance and school meals, said Gina Cornia, executive director of Utahns Against Hunger.

“If you have kids or are a middle-income family, every dollar matters,” Cornia said. “Our state Legislature had the opportunity to make it easier and to make work pay more for those folks, and they don’t act on it. And the people who don’t need that modest increase on income, they get all the breaks. It just continually puts the burden on families who can least afford it.”

Susan Speirs, chief executive officer of the Utah Association of Certified Public Accountants, said the lawmakers’ action and inaction on taxes made for lots of unanswered questions for state taxpayers.

“We were a little frustrated that this was the quick fix,” Speirs said, referring to the state income tax cut. The federal tax windfall Utah stands to receive, she said, might prompt the feds to consider more spending cuts in the future.

“The Legislature has quite a bit of homework they need to do,” she said. “We honestly thought they were not going to have enough time to address these issues [this session]. We were really thinking there would have to be a special session just to cover the income tax issues.“