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If Kansas de-couples from U.S. tax code will you be impacted?

Posted by Ben Miller, CPA Posted on Apr 30 2019

With passage of the Trump tax law in December 2017, states have a decision to make.  The new law impacts not only the Federal side but also the Kansas side for individuals filing returns.

Many states, including Kansas, “conform” to the Internal Revenue Code (IRC).  What this means, generally speaking, is the states follow the IRC with regard to what income is taxable and nontaxable, treatment of deductions, etc.  The more differences there are, the more difficult and fragmented the income tax return filing process becomes.  By “conforming” the states are trying to simplify the process.

One area where “conforming” is important is making the yearly choice of choosing the standard deduction or itemized deductions.  This past tax season (for tax year 2018) Kansas taxpayers felt this discrepancy.  The Kansas tax law states that if the taxpayer chooses the standard deduction on the Federal return, the standard deduction must be used on the Kansas return.  This may not sound like a big deal until you start to analyze the numbers.

Say a married couple has $23,500 of itemized deductions on their Federal return.  The new Trump tax law has bumped up the Federal married filing joint (MFJ) standard deduction to $24,000 for 2018.  Clearly the taxpayer will choose the larger standard deduction.  Kansas law states that because standard deduction was used on the Federal return, it must also be used on the Kansas return which is $7,500 for 2018.  Here’s the kicker: in some situations, depending on which itemized deductions were included in the $23,500 itemized deduction total, the couple might have owed less overall tax if the standard deduction was used on the Federal return and itemized deductions were used on the Kansas return.

Since some Kansas taxpayers are unable to use the itemized deductions on their Kansas return because the standard deduction was used on the Federal return, Kansas has seen a surge in income tax revenue.  The legislature in Topeka realized this after tax season started this spring.  A bill made its way through the Kansas legislature to de-couple from the U.S. tax code but was vetoed on March 25th.

There is talk around the capital that a bill to de-couple will come up again in May.  If a de-coupling bill passes with the retroactive language making it available to amend 2018 Kansas returns, all Kansas taxpayers should analyze if there is any advantage in amending their 2018 Kansas income tax returns.  Under these circumstances, many taxpayers would benefit from amending their returns.

There’s no way to know what the legislature will do when the bill comes up again.  If a bill is passed, taxpayers who thought they were done with taxes until next year will need to break out their trusty calculator again for the 2018 tax year.