Missourians could see almost $63 million more withheld from their paychecks this year than last year, Missouri's State Auditor Nicole Galloway said Tuesday.

Galloway's office completed an audit of the Missouri Department of Revenue after the department failed to notify state residents to update their tax withholdings after 2017 federal tax overhaul. The changes could result in the state paying about $232 million less in tax refunds this year, according to the audit.

Galloway's office said the Revenue Department changed the state's tax withholding tables for the third time in just over a year this January. Last year's changes could leave thousands of Missourians with less money withheld from their paychecks than expected when they file taxes for last year.

This year's tax withholding tables could withhold $62.9 million more from Missourians paychecks than in 2018, the audit found. The changes will affect 53 percent of Missourians, all with incomes of less than $125,000, Galloway said at a Tuesday morning news conference.

"It is very clear that they are over-withholding for Missourians," she said.

Galloway said the department did not notify legislators about January's changes and did not give members of the public time to voice opinions about the new withholding tables by going through the rule-making process.

"If the goal is to have the income tax tables correct so they are evenly paying the amount they should over a period of time every paycheck, then these tables would not be correct," Galloway said. "Because they are purposely over withholding.”

Missouri adjusted its withholding tables for the federal tax cut passed in late 2017 after the IRS issued new federal withholding tables in January 2018. The new Missouri tables were issued in March, and employers implemented them in April and May. The full effect was felt by May and June as individual income tax receipts fell unexpectedly.

Former department Director Joel Walters ordered another change in October to reduce the impact of under-withholding. In February Walters told a Missouri House panel the January fix solved the problem. Walters resigned from his position March 14 after weeks of scrutiny of how his department handled the tax withholding error.

Galloway’s audit concluded that the January change will over-withhold money because the new withholding tables excluded an adjustment to Missouri taxable income.

“DOR officials stated the exclusion of this adjustment from the 2019 withholding calculation was made in an effort to simplify the calculation and because including the adjustment did not significantly impact individual taxpayer withholdings,” the audit said. “The January 2019 withholding table calculation is not consistent with state regulations.”

A September update to the tax tables could have fixed the problem. Revenue Department officials drafted a news release which would have told residents to update their withholdings for the remainder of 2018. Instead the department issued a watered down version a news release which said the state would update its withholding tables, the Tribune learned after filing an open records request.

The department issued a two sentence response attached to the audit.

“The DOR will continue to monitor the impact of the withholding table changes and will take steps to communicate with taxpayers,” the statement said. “The DOR will begin work to update the state regulation.”

Walters’ office received the report March 8. Less than one week later, and one day after the Tribune revealed the department never issued the draft news release, Walters resigned March 14

Acting Director Ken Zellers noted in an email the report found that last year the state paid income tax returns faster. A 2015 bill passed by the General Assembly passed a bill which mandated the state pay residents interest on tax refunds issued in an untimely manner. The audit found the Revenue Department issued 433,000 refunds, or 24% of refunds, in June during fiscal year 2017. Last year the number of June refunds issued dropped to 48,000, or 3 %.

"As a result, the state has paid less in interest on late refunds (p. 8), which underscores our commitment to being good stewards of taxpayers’ dollars," Zellers said.

In March, House Budget Chairman Cody Smith, R-Carthage, told the Kansas City Star he thought revenues will still grow by 1.7 percent this year as long expected. As of Monday, fiscal year 2019 state revenues sit 3.96 percent, or $266.1 million, below the same point in fiscal year 2018. Income tax receipts are also down 7.86 percent in fiscal 2019, or $431.1 million from the same point last year.

Revenues are down and not meeting their projections, Galloway said. The state borrowed $500 million from the Missouri Budget Reserve Fund, the maximum amount the state can borrow from the fund. Three times in the last 12 years the state had to barrow from the fund to pay tax refunds, in fiscal years 2010, 2017 and 2019, Galloway said. Money taken from the fund must be repaid by May 16.

Still, the audit did not look at whether the state will meet budget projections, Galloway said. She declined to answer questions about the impact of cash flow on the budget.

Overall the audit estimated the combined decrease in withholdings and the increase in tax remittances will result in an overall decrease of $109 million in income tax revenue.

Galloway’s audit recommends the Department of Revenue continue to monitor the impact of withholding table changes on the timeliness of tax refunds and take steps to inform taxpayers of the changes to withholding tables.

House Minority Leader Crystal Quade, D-Springfield, said in a statement the Parson administration should be held accountable for the alleged cover-up.

“Each new revelation of how the Parson administration failed taxpayers further shakes Missourians’ confidence in the governor,” Quade said. “The Parson administration violated state law earlier this year when it unilaterally imposed changes affecting Missourians’ paychecks without disclosing that fact to lawmakers or the public.”