Late Tuesday, the Kansas Legislature voted to override Governor Sam Brownback’s veto of a budget bill that includes both a tax increase and a rollback of the 2012 business tax cuts. Both are effective retroactively to January 1, 2017.
For 2017, all the tax brackets for individuals were increased, with the top marginal rate increasing from 4.6% to 5.2% (the top rate increases to 5.7% starting in 2018). No penalties will be assessed, however, for the underpayment of 2017 taxes if the underpayment is paid in full by the filing deadline of the tax return (April 17, 2018).
The new law also repeals the business tax exclusion that was passed in 2012. Effective January 1, 2017, all income reported on Schedule C (business), Schedule E (rent, and pass-through from partnerships, S-corporations, and trusts), or Schedule F (farm) will once again be fully taxable in Kansas. As was the case with the rate increases, there are no penalties for the underpayment of 2017 taxes if the underpayment is paid in full by the filing deadline of the tax return. Therefore, there is no penalty if you choose to not increase your estimated tax payments for 2017.
The federal itemized deductions which are deductible for Kansas remains unchanged for 2017 at 100% of charitable contributions; 50% of mortgage interest, and real and personal property taxes; and no medical expenses. Starting in 2018, the amount of federal itemized deductions deductible for Kansas will increase each year, whereby in year 2020 all federal charitable contributions, medical expenses, mortgage interest, and real and personal property taxes will be deductible in Kansas.
The child care tax credit has also been reenacted. The credit starts in 2018 at 12.5% of the federal child care credit amount, increases to 18.75% for 2019, and then to 25% for years 2020 and after.
Please feel free to contact your MarksNelson advisor should you have any questions as to how this new law may impact your individual tax situation.