Kansans rushing to complete their state tax returns by Tuesday’s deadline might be in for a surprise. Though tax rates declined as part of Gov. Sam Brownback’s tax cuts, some deductions and credits were reduced or eliminated, meaning that some people could end up paying more or getting back less.
The Eagle reported recently on how the new tax code requires people who lose money in pass-through businesses to add those losses to any wages they report on their state returns. As a result, they could pay state taxes on money they didn’t make – costing them about $60 million a year in additional taxes, according to a state estimate.
The new tax code also reduces both standard and itemized deductions. With the exception of charitable contributions, allowable itemized deductions are reduced by 30 percent (and will be reduced more in future years). Several tax credits also were eliminated, such as for child and dependent care.
The tax code changes were particular hard on low-income Kansans. They no longer receive a refundable food sales-tax rebate, and low-income renters no longer qualify for the homestead property-tax refund program. They lost money as a result of the tax changes.
To help pay for the income-tax cuts, the Legislature raised the statewide sales tax. Not only did that tax shift hurt low-income Kansans, it increased the federal tax liability of Kansans who itemized their deductions, because state income taxes are deductible. For example, a $500 decrease in Kansas income taxes means a $500 increase in federal taxable income.
Though most Kansans will have lower state tax liabilities because of the tax changes, this Tax Day is a reminder that there were winners and losers.