Indiana taxpayers will get a $125 refund after they pay their 2021 state income taxes, the governor’s office announced Wednesday afternoon.
The size of the state surplus has triggered Indiana’s automatic tax-refund law, with an estimated $545 million being divided evenly among taxpayers.
The state estimated 4.3 million taxpayers will receive the $125 refund.
“Despite a pandemic, Indiana exceeded all expectations and closed the state fiscal year with an unprecedented amount in reserves,” said Gov. Eric Holcomb in a written statement. “We have an obligation to put this money back in the hands of taxpayers instead of leaving it in the hands of government.”
The governor’s office said Holcomb is working with leaders of the General Assembly on legislation that will streamline the process and make an additional 910,000 taxpayers eligible for the credit.
State government saw overall tax revenue grow 14% during the last budget year as collections bounced back stronger than expected from the COVID-19 pandemic recession, pushing its cash reserves to $3.9 billion as of June 30. Tax revenue kept growing, with the state collecting about $560 million, or 10% more than expected during the four-month span through October.
The typical taxpayer liability is about $1,000, meaning the $125 refund represents a 12%-13% one-time tax cut.
The Department of Revenue will begin processing payments for taxpayers after legislation is passed. Officials expect the department to complete refunds for taxpayers by May 1 for those who file by the April 18, 2022, filing deadline.
Taxpayers who applied for an extension will receive their payments after filing their return.
State tax collections have continued to be better than anticipated since July, leading to talk within the Republican-dominated Legislature of cutting taxes, although some are urging caution.
House Republican leaders have said they were looking at plans to cut the state’s 3.23% individual income tax rate or expand credits to reduce what income taxes are owed.
Tax revenue has kept growing, with tax collections running $645 million, or 9.6%, ahead of projections for the first five months of the current budget year.
House Republican Caucus Chairman Greg Steuerwald of Avon said Wednesday that tax cuts will get a “hard look” during the legislative session that starts in January.
“It’s timely to take a look at it and see if there’s something that makes sense,” Steuerwald said. “But once again being very careful what we do.”
Top Republicans in the state Senate, however, have been hesitant on the tax cut question. Much of Indiana’s revenue growth has come from a nearly 12% increase from last year in sales tax collections, which make up about half of state government’s general revenue, and some Senate Republicans warn that no one can reliably predict what will happen with those collections when federal relief spending ends.
Senate Appropriations Committee Chairman Ryan Misher said he worries about the long-term health of the national economy and that it would be better to wait on tax changes until the Legislature takes up a new two-year state budget during its 2023 session.
“This is a nonbudget year, so we’ve got a year to discuss these cuts,” said Mishler, a Republican from Bremen.
Holcomb was noncommittal when asked whether he believed now was the time for new tax cuts.
“We’re entertaining more,” Holcomb said. “But we’ll see what the House and the Senate have to say about that as well.”