We wish to make you aware of a new law that the Kansas Legislature passed this spring.
As you may know, for individuals who itemize their deductions, the current law limits the deductible amount of state and local taxes to $10,000. However, many taxpayers have state income, real estate, and personal property taxes that far exceed this amount, so they lose the tax benefit of the tax expenses which exceed the $10,000 cap.
To provide partners and shareholders some relief from this state and local tax (SALT) parity, the Kansas Legislature passed a new tax law which includes:
- Partnerships and S Corporations can pay Kansas income tax on behalf of the owners.
- Partnerships and S Corporations can deduct these payments on the federal tax return, thereby, reducing the federal income passed through to the owners.
- The amount paid on behalf of each owner will be a tax credit on their individual Kansas income tax returns.
- The law is effective for tax years beginning on or after January 1, 2022.
- It is an annual election made by the entity.
- The election is binding for all owners, therefore, if the entity makes the election to pay the Kansas estimated income tax, it will be for all partners and/or shareholders of the entity.
- The tax paid will be 5.7% of the net Kansas income of the entity and will be passed through
to each owner according to their ownership percentage.
We are waiting for the Kansas Department of Revenue to issue guidance for reporting and when/how the estimated payments will be made. In the meantime, you may want to consider reducing your Kansas estimated quarterly income tax payments.
If you need assistance adjusting your quarterly payments or have any questions, please contact your tax advisor at your earliest convenience. We will continue to keep you informed of any updates to this new tax law as soon as we learn more.