Maine clarifies 2017 withholding calculations

Maine Revenue Services (MRS) addressed questions from employers regarding the calculation of 2017 Maine income tax withholding. The income threshold at which Maine withholding begins, and the amount of withholding for low- and middle-income taxpayers, remains the same for both 2016 and 2017, even though the approach used to calculate the 2017 withholding amount is different from the 2016 approach. MRS changed the approach to institute a more transparent method to calculate the Maine withholding in response to taxpayer and software developer feedback. With certain exceptions, the 2017 withholding amounts for low- and middle-income employees are substantially the same as the 2016 withholding amounts. However, MRS noted that confusion relating to the calculation has resulted in unnecessary increases in Maine income tax withholding for some employees.

Prior to 2017, MRS included the standard deduction amount in the withholding tax rate schedules, reflecting a 0% bracket. For 2017, the standard deduction amount was removed from the tax rate schedules and must be subtracted from the annualized income amount to which the tax rate schedules are applied. The standard deduction amount is phased out starting at $70,000 for single filers ($140,000 for married filers) and is fully phased out at $145,000 ($290,000 for married). The standard deduction amount that must be subtracted from annualized income falling below the threshold is $8,750 for single filers and $20,350 for married filers. If the annualized income falls in the phase out range, the following equation must be used to calculate the amount of the standard deduction to subtract:

Single: 1-((Annualized Income – $70,000) ÷ $75,000) x $8,750

Married: 1-((Annualized Income – $140,000) ÷ $150,000) x $20,350. (Maine Tax Alert, Vol. 27, No. 1, Maine Revenue Services, January 2017.)

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