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What the New Kansas Income Tax Bill Will Mean for Individuals and Businesses

Alert
06.08.2017
By Charley Jensen

The saga of Kansas income tax law changes concluded earlier this week when Kansas lawmakers overrode Gov. Sam Brownback's veto of a bill that dismantled the governor's signature tax cuts. With the state facing an estimated $900 million budget gap, the bill is expected to raise $1.2 billion in taxes over two years. Summarized below are some of the key components of the new Kansas income tax bill.

  • Individual rate increases are phased in such that the highest rate in Kansas in 2017 will be 5.2%, and in 2018 and thereafter 5.7%. The rate for 2017 is retroactive to January 1, 2017, but the bill includes language that no underpayment of estimated taxes for 2017 due to the rate changes will apply so long as the underpayment is "rectified" by the due date of the 2017 returns, which is April 17, 2018.
  • Effective January 1, 2017, the LLC exemption (which also exempted S corporation business income), all partnership business income (except guaranteed payments), rental income and farm income (including sales of certain livestock, cattle, horses and Christmas trees) was removed.
  • Related to the immediate above, additions to federal adjusted gross income are also removed so that Kansas adjusted gross income will once again track federal adjusted gross income for individuals, subject to some changes that existed before and still remain. The following items are returned to being subtractions in determining Kansas AGI, just as they are in determining federal AGI: net operating loss deductions, losses from the sources that were part of the LLC exemption discussed in the second bullet above, ½ of the federal self-employment tax, deductions for retirement contributions of the self-employed, and the self-employed health insurance deduction.
  • Itemized deductions in Kansas have been reduced since the Brownback amendments were first effective in 2013. For 2017, the Kansas itemized deductions will remain at the same limited amounts, based on the federal deduction amounts as they have been in recent years, but will be gradually increased as shown below:

Item

2017

2018

2019

2020

Charitable Contributions

100% of Federal   

100% of Federal  

100% of Federal   

100% of Federal

Medical Expenses

0%

50%

75%

100%

Qualified Residence Interest

50%

50%

75%

100%

Taxes (RE & PPT)

50%

50%

75%

100%

  • Finally, the "march to zero" statute, that gradually decreased future individual income tax rates provided state revenues did not drop, was repealed.

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