Closed for Business: Kansas Ends Major Exemption of Certain Pass-Through & Other Income

Thoughtware Alert Published: Jun 01, 2017
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On June 6, 2017, the Kansas Legislature overturned Gov. Sam Brownback’s veto of S30, a bill that will institute a number of changes affecting the liability of Kansas taxpayers. Most significantly, the bill repealed the 2013 exemption of certain pass-through and other income reported on Form 1040 Schedules C, Profit or Loss From Business; E, Supplemental Income and Loss; and F, Profit or Loss From Farming, from Kansas taxation. As a result, these Kansas-sourced incomes will now be subject to Kansas income tax:

  • Net business profit on Form 1040 Schedule C
  • Net income from rental real estate on Form 1040 Schedule E
  • Net income from royalties on Form 1040 Schedule E
  • Net income from partnerships, S corporations, estates, trusts and residual interest in real estate mortgage investment conduits on Form 1040 Schedule E
  • Net farm rental on Form 1040 Schedule E
  • Net farm profit on Form 1040 Schedule F

Other notable revisions in the bill include:

  • Increased individual income tax brackets and rates from the 2.7 percent and 4.6 percent brackets in 2016:
    • 2017 – 2.9 percent, 4.9 percent, 5.2 percent
    • 2018 – 3.1 percent, 5.25 percent, 5.7 percent
  • Gradual increase after 2017 in available Kansas itemized deductions for medical care expenses, qualified resident interest and real and personal property taxes
  • Nonrefundable child and dependent care credit for years in which a federal child and dependent care credit is allowed:
    • 2018 – 12.5 percent of federal amount
    • 2019 – 18.75 percent of federal amount
    • 2020 and later – 25 percent of federal amount
  • Federal net operating loss deduction addback is removed for individual income tax purposes for tax years beginning after December 31, 2016
  • Certain limitations and extensions on Sales Tax Revenue (STAR) bond projects

The bill’s provisions are retroactive to January 1, 2017. However, taxpayers will be protected from any penalty and interest resulting from underpayments associated with the enacted changes provided any underpayment is remitted no later than April 17, 2018. Affected individuals may want to consider the effect of these changes on their Kansas tax liability and whether they should make estimated tax payments for 2017.

Contact your BKD advisor to learn more about how these changes affect you.

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