On June 6, 2017, the Kansas Legislature voted to override Governor Sam Brownback's veto of S30, and enacted a third individual income tax bracket and rate increases beginning in tax year 2017. The federal net operating loss (NOL) deduction addback for individuals will not be required, and most of the other federal adjusted gross income tax modifications made by L. 2012, H2117 (see State & Local Taxes Weekly, Vol. 23, No. 22, 05/29/2012), including the subtraction allowed pass-through businesses, are eliminated for tax years beginning after December 31, 2016. The bill also broadens Kansas itemized deductions beginning in tax year 2018, enacts a child and dependent care credit, and extends sales tax and revenue (STAR) bond projects until July 1, 2020. (L. 2017, S30, effective 07/01/2017 and as stated.)
Individual income tax rates increased. The bill adds a third income tax bracket and increases individual income tax rates for tax year 2017, and 2018 and after, as follows.
For married individuals filing joint returns:
· For tax year 2017, if taxable income is not over $30,000, the tax is 2.9% of Kansas taxable income; over $30,000 but not over $60,000, $870 plus 4.9% of the excess over $30,000; over $60,000, $2,340 plus 5.2% of the excess over $60,000.
· For tax year 2018 and all tax years after, if taxable income is not over $30,000, the tax is 3.1% of Kansas taxable income; over $30,000 but not over $60,000, $930 plus 5.25% of the excess over $30,000; over $60,000, $2,505 plus 5.7% of the excess over $60,000.
For all other individuals:
· For tax year 2017, if taxable income is not over $15,000, the tax is 2.9% of Kansas taxable income; over $15,000 but not over $30,000, $435 plus 4.9% of the excess over $15,000; over $30,000, $1,170 plus 5.2% of the excess over $30,000.
· For tax year 2018 and all tax years after, if taxable income is not over $15,000, the tax is 3.1% of Kansas taxable income; over $15,000 but not over $30,000, $465 plus 5.25% of the excess over $15,000; over $30,000, $1,252.50 plus 5.7% of the excess over $30,000.
Notwithstanding individual income tax rates imposed on residents and nonresidents, for tax years 2016 and 2017, married individuals filing joint returns with taxable income of $12,500 or less, and all other individuals with taxable income of $5,000 or less, will have a tax liability of zero. For tax year 2018, and all tax years thereafter, married individuals filing joint returns with taxable income of $5,000 or less, and all other individuals with taxable income of $2,500 or less, will have a tax liability of zero.
No taxpayer will be assessed penalties and interest arising from the underpayment of taxes due to changes to the individual income tax rates that become law on July 1, 2017, provided the underpayment is rectified on or before April 17, 2018.
Federal NOL deduction addback. The federal NOL deduction will no longer need to be added to an individual's federal adjusted gross income for tax years beginning after December 31, 2016. The federal NOL deduction will continue to be required as an addition to federal taxable income in determining a corporation's Kansas taxable income.
Additions to federal adjusted gross income. The following additions to federal adjusted gross income are only required for taxable years beginning after December 31, 2012 and ending before January 1, 2017: federal Schedule C, Form 1040 business losses; federal Schedule E, Form 1040 losses from rental real estate, royalties, partnerships, S corporations, estates, trusts, residual interest in real estate mortgage investment conduits and net farm rental; federal Schedule F, Form 1040 farm losses; any deduction for self-employment taxes under IRC Section 164(f), as in effect on January 1, 2012; any deduction for pension, profit sharing, and annuity plans of self-employed individuals under IRC Section 62(a)(6), as in effect on January 1, 2012; any deduction for health insurance under IRC Section 162(l) as in effect on January 1, 2012; and any deduction for domestic production activities under IRC Section 199, as in effect on January 1, 2012.
No taxpayer will be assessed penalties and interest from the underpayment of taxes due to changes to modifications of federal adjusted gross income that became law on July 1, 2017, provided the underpayment is rectified on or before April 17, 2018.
Subtractions from federal adjusted gross income. The requirement that the subtraction modification for income of banks and savings and loans associations must exclude the portion of income or loss reported on federal Schedule E, Form 1040 only applies for taxable years beginning after December 31, 2012 and ending before January 1, 2017.
The following subtractions are only allowed for taxable years beginning after December 31, 2012 and ending before January 1, 2017: net profit from business from federal Schedule C, Form 1040; net income from rental real estate, royalties, partnerships, S corporations, estates, trusts, residual interest in real estate mortgage investment conduits and net farm rental, from federal Schedule E, Form 1040; and net farm profit from federal Schedule F, Form 1040; and net gain from the sale of cattle and horses and livestock held by the taxpayer for draft, breeding, dairy or sporting purposes for specified periods, to the amount of the additions attributable to the business in which the livestock sold had been used.
The subtraction for net gain from the sale from Christmas trees grown in Kansas and held by the taxpayer for six years or more is only allowed for taxable years beginning after December 31, 2013 and ending before January 1, 2017.
No taxpayer will be assessed penalties and interest from the underpayment of taxes due to changes to modifications of federal adjusted gross income that became law on July 1, 2017, provided the underpayment is rectified on or before April 17, 2018.
Itemized deductions. The bill provides that taxpayers itemizing deductions on their federal returns can use Kansas itemized deductions in lieu of the Kansas standard deduction as follows:
· For tax years commencing on and after January 1, 2015 and ending before January 1, 2018, the Kansas itemized deduction of an individual means the following deductions from federal adjusted gross income, other than federal deductions for personal exemptions, as provided in the federal IRC with these modifications: 100% of charitable contributions that qualify as IRC Section 170 charitable contributions; 50% of the amount of qualified residence interest as provided in IRC Section 163(h) ; and 50% of the amount of taxes on real and personal property as provided in IRC Section 164(a).
· For the tax year commencing on and after January 1, 2018 and ending before January 1, 2019, the Kansas itemized deduction of an individual means the following deductions from federal adjusted gross income, other than federal deductions for personal exemptions, as provided in the federal IRC with these modifications: 100% of charitable contributions that qualify as IRC Section 170 charitable contributions; 50% of expenses for medical care allowable as deductions under IRC Section 213 ; 50% of the amount of qualified residence interest as provided in IRC Section 163(h); and 50% of the amount of taxes on real and personal property as provided in IRC Section 164(a).
· For the tax year commencing on and after January 1, 2019 and ending before January 1, 2020, the Kansas itemized deduction of an individual means the following deductions from federal adjusted gross income, other than federal deductions for personal exemptions, as provided in the federal IRC with these modifications: 100% of charitable contributions that qualify as IRC Section 170 charitable contributions; 75% of expenses for medical care allowable as deductions under IRC Section 213 ; 75% of the amount of qualified residence interest as provided in IRC Section 163(h); and 75% of the amount of taxes on real and personal property as provided in IRC Section 164(a).
· For tax years commencing on and after January 1, 2020, the Kansas itemized deduction of an individual means the following deductions from federal adjusted gross income, other than federal deductions for personal exemptions, as provided in the federal IRC with these modifications: 100% of charitable contributions that qualify as IRC Section 170 charitable contributions; 100% of expenses for medical care allowable as deductions under IRC Section 213; 100% of the amount of qualified residence interest as provided in IRC Section 163(h); and 100% of the amount of taxes on real and personal property as provided in IRC Section 164(a).
Child and dependent care credit. The bill allows a credit against the tax liability of a resident individual equal to a percentage of the amount of the federal child and dependent care credit allowed against the taxpayer's federal income tax liability for the taxable year in which the federal credit is claimed. The Kansas percentages of the federal credit are 12.5% for tax year 2018, 18.75% for tax year 2019 and 25% for tax year 2020 and all tax years thereafter. The credit cannot exceed the amount of the Kansas individual income tax imposed, reduced by the sum of any other credits allowable pursuant to law. This credit will not be allowed to any individual who fails to provide a valid Social Security number issued by the Social Security Administration to the individual, his or her spouse and every dependent of the individual.
STAR bond projects. The bill provides that no new STAR bond project district may be established from the July 1, 2017 through July 1, 2018, except that, for STAR bond project districts established prior to July 1, 2017, the foregoing will not prohibit a city or county from utilizing all provisions of the STAR bonds financing act, including, but not limited to, Kan. Stat. Ann. Section 12-17,171.
The expiration of the provisions regarding STAR bond projects that had been set for July 1, 2017 has been extended to July 1, 2020.
This article by Margaret Eisler, Esq. RIA is provided by Thomson Reuters.
Individual income tax rates increased. The bill adds a third income tax bracket and increases individual income tax rates for tax year 2017, and 2018 and after, as follows.
For married individuals filing joint returns:
· For tax year 2017, if taxable income is not over $30,000, the tax is 2.9% of Kansas taxable income; over $30,000 but not over $60,000, $870 plus 4.9% of the excess over $30,000; over $60,000, $2,340 plus 5.2% of the excess over $60,000.
· For tax year 2018 and all tax years after, if taxable income is not over $30,000, the tax is 3.1% of Kansas taxable income; over $30,000 but not over $60,000, $930 plus 5.25% of the excess over $30,000; over $60,000, $2,505 plus 5.7% of the excess over $60,000.
For all other individuals:
· For tax year 2017, if taxable income is not over $15,000, the tax is 2.9% of Kansas taxable income; over $15,000 but not over $30,000, $435 plus 4.9% of the excess over $15,000; over $30,000, $1,170 plus 5.2% of the excess over $30,000.
· For tax year 2018 and all tax years after, if taxable income is not over $15,000, the tax is 3.1% of Kansas taxable income; over $15,000 but not over $30,000, $465 plus 5.25% of the excess over $15,000; over $30,000, $1,252.50 plus 5.7% of the excess over $30,000.
Notwithstanding individual income tax rates imposed on residents and nonresidents, for tax years 2016 and 2017, married individuals filing joint returns with taxable income of $12,500 or less, and all other individuals with taxable income of $5,000 or less, will have a tax liability of zero. For tax year 2018, and all tax years thereafter, married individuals filing joint returns with taxable income of $5,000 or less, and all other individuals with taxable income of $2,500 or less, will have a tax liability of zero.
No taxpayer will be assessed penalties and interest arising from the underpayment of taxes due to changes to the individual income tax rates that become law on July 1, 2017, provided the underpayment is rectified on or before April 17, 2018.
Federal NOL deduction addback. The federal NOL deduction will no longer need to be added to an individual's federal adjusted gross income for tax years beginning after December 31, 2016. The federal NOL deduction will continue to be required as an addition to federal taxable income in determining a corporation's Kansas taxable income.
Additions to federal adjusted gross income. The following additions to federal adjusted gross income are only required for taxable years beginning after December 31, 2012 and ending before January 1, 2017: federal Schedule C, Form 1040 business losses; federal Schedule E, Form 1040 losses from rental real estate, royalties, partnerships, S corporations, estates, trusts, residual interest in real estate mortgage investment conduits and net farm rental; federal Schedule F, Form 1040 farm losses; any deduction for self-employment taxes under IRC Section 164(f), as in effect on January 1, 2012; any deduction for pension, profit sharing, and annuity plans of self-employed individuals under IRC Section 62(a)(6), as in effect on January 1, 2012; any deduction for health insurance under IRC Section 162(l) as in effect on January 1, 2012; and any deduction for domestic production activities under IRC Section 199, as in effect on January 1, 2012.
No taxpayer will be assessed penalties and interest from the underpayment of taxes due to changes to modifications of federal adjusted gross income that became law on July 1, 2017, provided the underpayment is rectified on or before April 17, 2018.
Subtractions from federal adjusted gross income. The requirement that the subtraction modification for income of banks and savings and loans associations must exclude the portion of income or loss reported on federal Schedule E, Form 1040 only applies for taxable years beginning after December 31, 2012 and ending before January 1, 2017.
The following subtractions are only allowed for taxable years beginning after December 31, 2012 and ending before January 1, 2017: net profit from business from federal Schedule C, Form 1040; net income from rental real estate, royalties, partnerships, S corporations, estates, trusts, residual interest in real estate mortgage investment conduits and net farm rental, from federal Schedule E, Form 1040; and net farm profit from federal Schedule F, Form 1040; and net gain from the sale of cattle and horses and livestock held by the taxpayer for draft, breeding, dairy or sporting purposes for specified periods, to the amount of the additions attributable to the business in which the livestock sold had been used.
The subtraction for net gain from the sale from Christmas trees grown in Kansas and held by the taxpayer for six years or more is only allowed for taxable years beginning after December 31, 2013 and ending before January 1, 2017.
No taxpayer will be assessed penalties and interest from the underpayment of taxes due to changes to modifications of federal adjusted gross income that became law on July 1, 2017, provided the underpayment is rectified on or before April 17, 2018.
Itemized deductions. The bill provides that taxpayers itemizing deductions on their federal returns can use Kansas itemized deductions in lieu of the Kansas standard deduction as follows:
· For tax years commencing on and after January 1, 2015 and ending before January 1, 2018, the Kansas itemized deduction of an individual means the following deductions from federal adjusted gross income, other than federal deductions for personal exemptions, as provided in the federal IRC with these modifications: 100% of charitable contributions that qualify as IRC Section 170 charitable contributions; 50% of the amount of qualified residence interest as provided in IRC Section 163(h) ; and 50% of the amount of taxes on real and personal property as provided in IRC Section 164(a).
· For the tax year commencing on and after January 1, 2018 and ending before January 1, 2019, the Kansas itemized deduction of an individual means the following deductions from federal adjusted gross income, other than federal deductions for personal exemptions, as provided in the federal IRC with these modifications: 100% of charitable contributions that qualify as IRC Section 170 charitable contributions; 50% of expenses for medical care allowable as deductions under IRC Section 213 ; 50% of the amount of qualified residence interest as provided in IRC Section 163(h); and 50% of the amount of taxes on real and personal property as provided in IRC Section 164(a).
· For the tax year commencing on and after January 1, 2019 and ending before January 1, 2020, the Kansas itemized deduction of an individual means the following deductions from federal adjusted gross income, other than federal deductions for personal exemptions, as provided in the federal IRC with these modifications: 100% of charitable contributions that qualify as IRC Section 170 charitable contributions; 75% of expenses for medical care allowable as deductions under IRC Section 213 ; 75% of the amount of qualified residence interest as provided in IRC Section 163(h); and 75% of the amount of taxes on real and personal property as provided in IRC Section 164(a).
· For tax years commencing on and after January 1, 2020, the Kansas itemized deduction of an individual means the following deductions from federal adjusted gross income, other than federal deductions for personal exemptions, as provided in the federal IRC with these modifications: 100% of charitable contributions that qualify as IRC Section 170 charitable contributions; 100% of expenses for medical care allowable as deductions under IRC Section 213; 100% of the amount of qualified residence interest as provided in IRC Section 163(h); and 100% of the amount of taxes on real and personal property as provided in IRC Section 164(a).
Child and dependent care credit. The bill allows a credit against the tax liability of a resident individual equal to a percentage of the amount of the federal child and dependent care credit allowed against the taxpayer's federal income tax liability for the taxable year in which the federal credit is claimed. The Kansas percentages of the federal credit are 12.5% for tax year 2018, 18.75% for tax year 2019 and 25% for tax year 2020 and all tax years thereafter. The credit cannot exceed the amount of the Kansas individual income tax imposed, reduced by the sum of any other credits allowable pursuant to law. This credit will not be allowed to any individual who fails to provide a valid Social Security number issued by the Social Security Administration to the individual, his or her spouse and every dependent of the individual.
STAR bond projects. The bill provides that no new STAR bond project district may be established from the July 1, 2017 through July 1, 2018, except that, for STAR bond project districts established prior to July 1, 2017, the foregoing will not prohibit a city or county from utilizing all provisions of the STAR bonds financing act, including, but not limited to, Kan. Stat. Ann. Section 12-17,171.
The expiration of the provisions regarding STAR bond projects that had been set for July 1, 2017 has been extended to July 1, 2020.
This article by Margaret Eisler, Esq. RIA is provided by Thomson Reuters.
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