On May 21, 2021, Oklahoma Gov. Kevin Stitt signed several bills (House Bill 2960, House Bill 2962 and House Bill 2963) that will lower the rates for both corporate and personal income taxes. The bills were part of the state’s fiscal year 2022 budget that was agreed to by the governor and the legislature earlier this month.
Under House Bill 2960, for tax years beginning Jan. 1, 2022, the corporate income tax rate is reduced to 4% from 6%. Oklahoma imposes a flat rate on all corporate income. Under House Bill 2962, the personal income tax rates in each of the state’s five brackets are reduced by 0.25% effective Jan. 1, 2022. The cuts will reduce the highest bracket’s rate from 5% to 4.75% and the lowest bracket’s rate from 0.5% to 0.25%. Finally, under House Bill 2963, the income tax rate for electing pass-through entities is reduced to 4% from 6%, also effective Jan. 1, 2022. Like the corporate tax, the pass-through entity tax is imposed on all income. The pass-through entity tax is only applicable to pass-through entities that elect to be taxed at the entity level.
Oklahoma businesses, both corporate and those operating through pass-through entities, should be aware of the new law as their tax burdens are likely to lessen. In addition, withholding requirements for Oklahoma based employees are likely to change. Individuals subject to Oklahoma personal income tax will also benefit from the new law.
Oklahoma is far from the first state in the Midwest to cut taxes this session. Iowa, Missouri, Montana and Nebraska have or likely will enact personal and corporate income taxes cuts. Oklahoma taxpayers with questions about the tax cuts should consult their state and local tax professional for more information.