The Tax Cuts and Jobs Act (TCJA) took effect for tax year 2018. The TCJA lowered the income tax rates for individuals and nearly doubled the standard deduction. The federal standard deduction increased to $12,000 for single taxpayers and $24,000 for married filing joint taxpayers, with additional amounts for those over 65 and/or blind. We have been preparing projections for months to see how clients will be affected by the changes. The Joint Committee on Taxation estimates that about 88 percent of the households that file tax returns will take the increased standard deduction on their federal returns.
How does this affect Kansas taxpayers? For individual federal income taxes, taxpayers may claim either the standard deduction or itemized deductions, a more complex option. Some previously deductible items have been eliminated or limited by TCJA. For Kansas individual income tax returns, taxpayers may take itemized deductions only if they took itemized deductions on the federal return. These are subject to certain further limitations for the deduction to be allowed on the Kansas return. If they take itemized deductions on the federal return, they may also opt to take the standard deduction on Kansas if that is more advantageous for them. However, if taxpayers choose to take the standard deduction on their federal return, they must also take the standard deduction on the Kansas return. The current standard deduction for Kansas is $3,000 for single and $7,500 for married filing joint.
With such a large percentage of households that will now take the standard deduction on their federal return, they will be forced to take the standard deduction on their Kansas return. This could have a significant impact on their Kansas tax liability, as well as revenue to the state.
For years, Kansas tax law was considered "conforming to Federal law". But that ship has sailed with the dramatic changes beginning in 2013 and subsequent years. During the 2018 legislative session, a bill was introduced that would have given taxpayers the option to choose itemized or standard deduction, but that bill did not pass.
If you have strong feelings, one way or the other on whether Kansas taxpayers should have the option to choose between standard or itemized deductions in the future, or if the standard deductions should be changed, please contact your state legislators. Call us if you have questions on how the law change could affect your individual tax situation.