Back to top

New Kansas Tax Law - Senate Bill 30

June 8, 2017

 

Dear Clients and Friends:

 

On June 6, 2017, the Kansas Legislature overrode the veto of Governor Sam Brownback and passed Senate Bill No. 30 (SB 30) which changes the income taxation structure for the State of Kansas.  Many of the important law changes are summarized below.

The most significant change in SB 30 is the repeal of the non-wage business income tax exemption which did not tax net income or loss from sole proprietorships, rental real estate, royalties, most farming activities and pass-through entities such as S corporations, trusts and partnerships.  The repeal is retroactively effective as of January 1, 2017. 

The bill also increases the individual income tax rates starting with the 2017 tax year and moves from a two-bracket system to a three-bracket system.  The top rate for the 2016 tax year was 4.6%.  The top rate for 2017 will increase to 5.2% with the top rate increasing to 5.7% for 2018 and beyond.

 

Individual income tax rates for 2017 are as follows:

 

Married filing joint

If taxable income is:                         The tax is:

Not over $30,000…………………………2.9% of Kansas taxable income

Over $30,000 but not over $60,000……$870 plus 4.9% of excess over $30,000

Over $60,000……………………............$2,340 plus 5.2% of excess over $60,000

 

All other individuals

If taxable income is:                         The tax is:

Not over $15,000…………………………2.9% of Kansas taxable income

Over $15,000 but not over $30,000……$435 plus 4.9% of excess over $15,000

Over $30,000……………………............$1,170 plus 5.2% of excess over $30,000

 

Individual income tax rates for 2018 and all years thereafter are as follows:

 

Married filing joint

If taxable income is:                         The tax is:

Not over $30,000…………………………3.1% of Kansas taxable income

Over $30,000 but not over $60,000……$930 plus 5.25% of excess over $30,000

Over $60,000……………………............$2,505 plus 5.7% of excess over $60,000

 

All other individuals

If taxable income is:                          The tax is:

Not over $15,000…………………………3.1% of Kansas taxable income

Over $15,000 but not over $30,000……$465 plus 5.25% of excess over $15,000

Over $30,000……………………............$1,252.50 plus 5.7% of excess over $30,000

 

In order to compensate for the tax cuts that were being given to Kansas businesses with the non-wage business income tax exemption, Kansas had cut the amount of allowable itemized deductions.  This cut will gradually be phased out for 2018 and 2019 with 100% of charitable contributions, medical expenses, mortgage interest and real and personal property taxes that are allowable for federal income tax purposes allowable for Kansas income tax purposes in the 2020 tax year.  A summary of the changes to allowable itemized deductions for Kansas income tax purposes is as follows:

 

For the 2017 tax year, the allowable itemized deductions remain unchanged from 2016 and are as follows:

  • 100% of charitable contributions allowable for federal income tax purposes;
  • 50% of mortgage interest allowable for federal income tax purposes;
  • 50% of real and personal property taxes allowable for federal income tax purposes; and
  • 0% of medical expenses allowable for federal income tax purposes.

 

For the 2018 tax year, the allowable deductions remain the same as 2017 with the exception of medical expenses which is increased from 0% to 50%.

 

For the 2019 tax year, the allowable itemized deductions are as follows:

  • 100% of charitable contributions allowable for federal income tax purposes;
  • 75% of mortgage interest allowable for federal income tax purposes;
  • 75% of real and personal property taxes allowable for federal income tax purposes; and
  • 75% of medical expenses allowable for federal income tax purposes.

 

For the 2020 tax year and beyond, the allowable itemized deductions are as follows:

  • 100% of charitable contributions allowable for federal income tax purposes;
  • 100% of mortgage interest allowable for federal income tax purposes;
  • 100% of real and personal property taxes allowable for federal income tax purposes; and
  • 100% of medical expenses allowable for federal income tax purposes.

 

SB 30 did not change the treatment of miscellaneous itemized deductions such as certain investment fees, tax preparation fees and unreimbursed employee business expenses.  These miscellaneous itemized deductions that are allowable for federal income tax purposes remain not deductible for Kansas income tax purposes.

The Legislature has recognized that the above changes to the Kansas income tax law for the 2017 tax year will likely cause unplanned changes in the 2017 income tax liability of many Kansas taxpayers; therefore, the Legislature has built an exception into SB 30 that waives the estimated tax underpayment penalty and interest due to changes in the individual income tax rates and the repeal of the non-wage business income exemption as long as the taxpayer pays the underpayment by April 17, 2018 which is the original due date of 2017 Kansas individual income tax returns.

The Kansas dependent care credit for costs paid for childcare while working, which was eliminated beginning with the 2013 tax year, has been reinstated starting with the 2018 tax year.  The credit is non-refundable which means that it cannot reduce a taxpayer’s Kansas income tax liability below zero.  The allowable credit is as follows:

  • For the 2018 tax year, 12.5% of the allowable dependent care credit on the taxpayer’s federal return;
  • For the 2019 tax year, 18.75% of the allowable dependent care credit on the taxpayer’s federal return; and
  • For the 2020 tax year and all future years, 25% of the allowable dependent care credit on the taxpayer’s federal return.

 

The passage of SB 30 will affect all taxpayers with Kansas source income.  However, it is likely to have a much larger effect on taxpayers with large amounts of Kansas source pass-through income (Schedule K-1 income from partnerships, S corporations or trusts), sole proprietorship income, rental real estate income, royalty income or income from farming activities.  Please contact our office with any questions on the effect to your Kansas income tax liability for 2017 and future years.

Very truly yours,

 

YOUNG & ASSOCIATES, LLC