Correction: A previous version of this story had the incorrect amount for standard deductions.
In the first year after major changes in the state’s tax code, fewer people are getting refunds and more taxpayers are sending checks to the state, according to data from the Kansas Department of Revenue.
The amount of the average refund has dropped this year; average payments for those who owe also are slightly less.
The Revenue Department reports that for the current tax year through March 12, the state had processed 438,116 returns that were eligible for a refund.
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That’s about 80,600 fewer than through the same period a year ago, when 518,721 taxpayers had filed for a refund.
The refunds also are smaller.
Last year, the average refund was $474; this year it’s $406, said Jeannine Koranda, spokeswoman for the Revenue Department.
The payment side of the tax return picture is a little more hazy.
Taxpayers so far have filed 84,117 returns owing money to the state, according to the Revenue Department figures.
That’s compared to 80,548 at the same time last year, a difference of about 3,500 more tax-owing returns.
So far, the checks received have totaled $87.8 million, up from last year’s $40.5 million – but with a huge asterisk attached.
This year’s tax take is skewed approximately $50 million on the high side, due to one-time payments related to liabilities from earlier tax years.
Koranda said the department could not provide details on where those payments came from because of confidentiality rules. She said it involved a handful of checks, some for large amounts and some that are still the subject of pending litigation.
Factor out that roughly $50 million and this year’s total payments are about the same as last year, Koranda said.
This year’s returns are the first based on the tax rates, deductions and credits that the Legislature passed in 2012 at the request of Gov. Sam Brownback.
The changes took effect Jan. 1, 2013, and 2014 returns are based on 2013 rates and rules. The 2013 returns were based on the previous tax code in place in 2012.
The Brownback tax plan collapsed three tax brackets into two and lowered basic tax rates.
It also increased standard deductions for married couples who don’t itemize from $6,000 to $7,500, and for heads of households from $4,500 to $5,500.
The biggest winners are owners of certain types of businesses, including limited liability companies, sole proprietorships, farms, real estate ventures and corporations organized under Subchapter S of the federal tax code. Those businesses are known as “pass-through” entities because their profits are untaxed at the business level and reported on the owners’ personal tax forms.
Those former Kansas taxpayers are now completely exempt from state income tax on their profits.
Wage earners pay at the reduced rates, but whether that’s a net gain or loss compared to the earlier code depends on the taxpayer’s individual situation.
In addition to lowering rates, the governor and Legislature also gave what they called “a haircut” to some credits and deductions.
Leon Bush, owner of the Fas-Tax preparation service in west Wichita, said the cumulative changes have hurt some of his customers, most of whom are blue-collar workers. Bush has been preparing tax returns for 23 years.
One of the major changes this year was switching a credit for sales taxes paid on food from a refundable credit to a nonrefundable credit, he said.
“It’s still there, but you only get it if you owe taxes and then they’ll take it off what you owe,” Bush said. “But you don’t get a refund on that part. That’s what I see the most.”
An analysis by the nonprofit, nonpartisan Institution on Taxation and Economic Policy research group in Washington said that change especially hurt low-income families who otherwise might have seen a refund.
“Even after the income tax rate cut and the increase in the standard deduction for heads of household and married couples, a family of four with $17,000 of income will lose $294 because of the elimination of this important credit,” the analysis said.
Another big change has been the elimination of the so-called “homestead” refund for renters. That refund, worth a maximum of $700, is designed to help low-income and disabled residents recover some of the money they pay for property taxes on their home.
Previously, renters could claim that refund, on the theory that the cost of the building owner’s property tax is passed on to the tenants in their rental payments.
Now, however, “the homeowners can still get their homestead money back, but renters can’t,” Bush said. “It hurts the poor people – poor renters, mainly.”
A third change has been elimination of a credit for child and dependent care, which had a maximum value of $525 on 2013 tax returns.
In contrast to his lower-income customers, Bush said this is the first year he’s had zero tax liability to the state, because of all of his income comes from his tax-preparation business and real estate investments, which are now tax-free.
State officials and tax experts say it’s too soon to tell with any certainty what will happen with refunds and payments between now and the April 15 filing deadline.
If events follow their historical pattern, there are still many more tax checks to be written by Kansans.
“Generally, people will file for refunds as soon as they can,” said Joan Wagnon, a former secretary of revenue for the state.
She said the department typically gets a burst of refund-eligible returns in February, shortly after workers get their W-2 form, the document summarizing annual earnings that’s used for preparing tax returns.
Refunds start to taper off in March. Taxpayers who end up owing the state are a lot more likely to hang onto their money as long as they can, filing at or near the April deadline, Wagnon said.
Koranda confirmed that’s the pattern the Revenue Department is expecting to continue this year.
Another curveball in the mix is that the federal Department of Internal Revenue didn’t begin processing returns until Jan. 31, Koranda said.
“That means that any Kansas return that also filed with the IRS could not be processed until after the 31st, creating a two-week delay,” Koranda said.