The Department of Revenue should have done a better job warning Missourians that state income tax withholding errors will reduce or eliminate the tax refund for many residents, department Director Joel Walters said Thursday.

The department discovered an error in September that means many wage earners have not had enough money withheld from paychecks to cover their state tax liability. The department issued a news release on Sept. 21 that did not state the magnitude of the problem and messages on social media have suggested reviewing tax liability by using an online withholding calculator.

“I and we should have done more and I am certainly willing to accept we should have done more,” Walters said. “We had messages on Twitter, Facebook, and in speeches, I talked about this.”

The withholding error will not change a taxpayers ultimate tax liability but hundreds of thousands of filers out of the 3 million expected returns could find they owe money on April 15 when they were expecting a refund based on results in past years. House Minority Leader Crystal Quade of Springfield has filed a bill to extend the deadline for paying any money owed until June 15 without penalty.

“My initial thought is and always has been that it is frustrating that there is so little communication about what is happening,” Quade said.

Senate Majority Leader Caleb Rowden of Columbia said he agreed the department should have been more active in warning taxpayers about the issue.

"I would certainly, without trying to be a Monday morning quarterback, I think there are some things they could have done differently but the reality is we are where we are," Rowden said. "I am looking forward and trying to figure out what we can do looking forward instead of trying to rewrite history."

During a legislative forum with the Columbia Chamber of Commerce Thursday, state Rep. Kip Kendrick, D-Columbia, warned employers that many workers won't learn that they owe money instead of being due a refund until they file their tax returns.

"There are going to be a tremendous amount of surprised tax bills out there this year, so prepare your employees for it," Kendrick said. "You’ll probably get some push back. Understand that is not your fault, that is the state of Missouri’s fault."

The department began to notice the problem when state revenues didn’t match expectations despite low unemployment and rising income and prices. General revenue receipts were down 4.9 percent through the first five months of the fiscal year.

The reason why many people will owe money when they file their state return is due in part to mistakes made after the federal tax cuts passed in December 2017 and long-standing error in tax calculation for the standard deduction, Walters said.

The federal tax law doubled the standard deduction and eliminated the personal exemption.

The biggest impact will be on individuals with incomes low enough that they pay $5,000 or less in federal taxes and married couples who pay less than $10,000. That is the cutoff for deducting federal income tax payments from Missouri taxable income, Walters said.

“For most taxpayers, this will be a single-digit dollar impact in terms of withholding in each paycheck,” he said. “Over the course of a year, that will have a material impact for individuals.”

The department adjusted withholding tables in September and began analyzing the impact. An analysis of 2,000 returns from single filers shows the average refund of $73.70 was replaced by an average remittance of $64.99. For head-of-household filers — generally single taxpayers with children — the average refund was reduced from $156.07 to $17.61.

The department is unable to provide an analysis for returns filed by married couples. Those returns are more difficult to analyze, Walters said, because they have more variables including the number of dependents.

“I don’t know how I could figure that out because of the facts that are so individual,” he said.

Quade’s bill granting an extension would only apply to people who owe the state $200 or less. Quade said she expects to discuss her bill with Republicans who control the legislature after lawmakers begin their session Wednesday.

“This isn’t a partisan issue,” Quade said. “It boils down to the state of Missouri made a mistake. We are not forgiving this money but we are just giving people some leeway in it because we messed up.”

Rowden also said lawmakers should look at a way to provide an opportunity for people to pay any unexpected tax bill without penalty.

"I don’t think anything is off the table," he said. "If we feel like we need to lighten the load for taxpayers I think that is something we are interested in."

The state is anticipating a 20.5 percent decline in refunds and a 15.4 percent increase in payments accompanying income tax returns, enough to turn the decline in state revenue into a small increase.

Lawmakers must work on a budget trusting those figures are accurate and that this year’s budget will remain in balance, Quade noted. Blaming the decline in revenue on a withholding error makes her uneasy, she said.

“It makes it difficult for me to honestly trust the numbers we are working with,” Quade said.

Paycheck withholding is designed to provide the government with a steady source of income and be as close as possible to the taxpayer’s actual liability, Walters said. How much is withheld is based on information taxpayers provide their employers on a W-4 form and now is a good time to check with employers to determine if enough is being withheld, he said.

“Many Americans like the idea of having a refund from their taxes when they file their return,” Walters said. “An economist will tell you that is not a good economic decision because that is an interest free loan to the government.”