Flat Tax, ESA, and Student Loan Update
The state has money, vouchers are in, and check those loan types!
2023 AZ Income Tax Rate: 2.5%
Gov. Ducey announced Thursday the state had met its revenue target for reducing the state income tax rate for 2023 to 2.5% for all filers beginning January 1, 2023.
Last year’s budget included a “flat tax” plan that automatically reduces the income tax rate if certain revenue targets are achieved. The tax rates for calendar year 2022 were collapsed from four income brackets to two, and overall tax rate was reduced to 2.55% for taxpayers making below $27,272 ($54,544 for married couples) and 2.98% for income above the threshold.
The budget included an intermediate reduction if FY22 general fund revenue hit roughly $12.8 billion, but did not exceed approximately $13 billion. Once revenue exceeds $13 billion, a 2.5% income tax for all taxpayers could be implemented.
According to both the Legislative and gubernatorial budget offices, total general fund revenue for FY2022 was $16.7 billion, paving the way for the 2.5% tax to be implemented beginning January 1, 2023.
ESA Referendum Will Not Proceed
Secretary of State Katie Hobbs made it official when she announced Friday that the referendum effort to place the universal ESA expansion passed by the Legislature last session on the ballot had not gathered enough signatures to meet the threshold of 188,823 valid signatures.
This means the ESA expansion will proceed as passed and the department of education is proceeding to process applications. Local reporter Dillon Rosenblatt did an examination of the application data for new applicants and found that about 67.5% of applicants were from ZIP codes where household income is above the state median income, while 154 applications of over 12,000 came from the 5 lowest income ZIP codes. This will be worth monitoring as time goes on.
Student Loan Forgiveness Update
As indicated in previous updates, ASBA is monitoring student loan forgiveness information because of its potential to help educators. Last week, the Biden administration made a change for borrowers who hold older Federal Family Education Loan Program (FFELP) loans held by commerical banks rather than the US Department of Education (USED). Generally, these are loans issued prior to 2010. Initially, the loan forgiveness program had said a borrower could consolidate these loans into federal direct loans held by USED, but last week the administration changed its guidance to say commerical FFELP loans had to be consolidated by September 29, 2022 to qualify. This is unwelcome news to holders of these specific loans, but the administration says it is trying to come up with other options.
Holders of older FFELP loans are still eligible for the limited time changes to Public Service Loan Forgiveness (PSLF) however, so for teachers who have been teaching for (or are nearing) 10 years of service, that may be a viable option.
In other news, the administration said it hopes to have an application available for student loan forgiveness by mid-October.