Kansas Taxes – Sneaky Changes

This is a big year for Kansas taxes. Most of the tax changes the legislators made in 2012 went into effect in 2013. For individuals, the major change is how Kansa will be taxing income from a business. Basically, they won’t tax it but more about that later.  There were a number of other changes for 2013 and couple I want to rant about.

The first change was the tax rate changes. Kansas now only has two tax rates; 3% and 4.9%. The cut off for married filing joint returns is $30,000.If their income is under $30,001, the taxpayers will pay a 3% tax on their taxable income up to $30,000 and 4.9% on the income over that. Other filing statuses change rates at $15,001. That sounds great but the legislators then reduced the standard deductions for taxpayers filing married filing joint or head of household. The 2013 standard deductions are $3000 for single or married filing separate returns, $5,500 for head of household and $7500 for married filing joint. As a result the tax savings is not as great as the rate reduction makes it sound.

But the big issue for me is the tricks the legislature has played with the Food Sales Tax Refund (FSTR).

The Food Sales Tax Refund was originally created to help offset Kansas’s sales tax on food for lower income seniors, the disabled and families. It’s never been a large credit. In 2012, the credit was $94 per exemption if the qualified income was less than $18360 and $47 per exemption for income between $18360 and $36700. However, the program was canceled beginning in 2013 by the tax reform which passed the Kansas legislature in 2012. However, the program was revived in 2013 with a few modifications. The per-person credit was increased to $125 for anyone who has less than $30,615 in qualified income. Sounds good? No! While the credit was increased and taxpayers will qualify for larger FSTR credits, fewer of them will actually see the money. Why? FSTR was made nonrefundable.

Last year the FSTR was added to any withholding and Earned Income Credit and used to reduce any tax liability the taxpayer had. The remaining payments were refunded to the taxpayer. Beginning with 2013 returns, the Kansas K-40 has been changed. The FSTR reduces any tax liability to $0.00. Any FSTR left is lost. A taxpayer who qualifies for $125 FSTR but has a tax liability of $56 will use the FSTR to reduce the tax to $0 but loses the remaining $69 of FSTR. If the taxpayer has any other refundable or non-refundable credit, including Earned Income Credit or the Credit for Taxes Paid to Another State, these are used to reduce the tax liability before the FSTR is used. The taxpayer with a $56 tax liability and Earned Income Credit will have to use their EIC to pay the $56 tax and lose the whole $125 FSTR.

My problem with the new system is how sneaky it is. When the legislature cut the Food Sales Tax Refund, I could understand the cut as part of tax reform. I didn’t like it but I could understand why.  But when it was brought back with a major restriction – that was political. Only about 5% of my clients who qualify for the FSTR will actually use up their credit now. Most will qualify for the credit and lose the whole thing because they have little or no Kansas tax to offset it. They will come in under the impression the credit is back and learn they won’t be getting a Kansas refund because of the word “non-refundable”. Like I said, sneaky.

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