Employees should begin noticing the new rates in their pay checks this month. The new income tax rates are slightly higher for all employees, with three different tax rates versus the previous two.
Currently the state taxes the first $15,000 of individual income, or $30,000 for a couple filing jointly, at 2.7%. Income above those thresholds is taxed at 4.6%.
Under the new tax law, that lower rate rises to 3.1%, and the second rate rises to 5.25%. But the new law also adds a third, upper income bracket at $30,000 for individuals, or $60,000 for married couples filing jointly. Income above those amounts will soon be taxed at 5.7%.
Those rates, are still lower than the rates prior to the tax decrease effective in 2012. Prior to 2012, the tax rates were 3.5%, 6.25% and 6.45%.
The increased hit in tax rates may not have that big of an impact on small to moderate income taxpayers, but the balance of the year, income earners may feel the squeeze, since the new tax rates are retroactive. That means you’ve underpaid your taxes for the first six months of this year.
To help catch up this underpayment, the state has issued new tax withholding charts that reflect the tax rate approved for 2018 – yes the rates are scheduled to increase again in 2018. Withholding at this higher withhold rate for the balance of the year should help most Kansans catch up.
In order to make up for the increased tax liability almost every Kansan owes, KDOR utilized 2018 tax rates in the new withholding tables. This policy decision serves two purposes: to ensure that enough income is withheld from paychecks to catch up for the increased and backdated tax liability in the second half of the year, and also to provide certainty for Kansas employers.
Although the withholding tables are designed to adjust paychecks according to law, Kansas Revenue Secretary Sam Williams recommends individuals talk to their tax preparer to ensure the amount withheld is sufficient to meet their increased tax liability.
“There are a lot of variables with tax increases. It’s best to be prepared well in advance to ensure it doesn’t destroy your budget,” Secretary Williams said.
There are a lot of additional changes in the new tax law for both individuals and businesses. This year, or before you file your taxes next year, it’s probably worth visiting with a tax professional to make sure you don’t miss a deduction or a new tax liability. For example, sales tax filing frequencies have changed at both the low revenue and high revenue end and the date for filing KW-3s end of the year employee earning reports has moved up.
For individuals, the rules have changed on whether or not you can itemize your deductions and individuals with small businesses on the side, that may have operated at a loss, can now deduct their net operating loss from their business from their total Kansas income. That’s a benefit that was taken away in 2012, but reinstated in the new tax code.
A much appreciated change is the return of the tax credit for child and dependent care expenses. This is a credit allowable on your federal tax return but taken away on Kansas filers tax returns in 2012. The tax credit doesn’t return until 2018, but the credit will be 12.5% of the amount of the credit allowed against your federal income tax liability. That amount increases to 18.75% in 2019 and 25% every year thereafter.
Also, for people who work a regular job and have a cottage business on the side, the new law restores their ability to deduct net operating losses of the business from their total Kansas income, something they have not been able to do since 2012.
Individuals hit the most from the new tax law are those who gained the most from the 2012 changes, that’s people whose income comes from business income, Since 2012, those individuals have not been taxed at all on their business income. Not only is their tax being reinstated, the reinstatement is retroactive to Jan. 1. So these individuals owe a half year of taxes that they may not have planned for. The same as for income earners, this change is retroactive to Jan. 1. The legislatures were pretty nice and will not charge penalty or interest for any underpayment that is due this mid-year law change.