Kansas state lawmakers overwhelmingly passed a compromise tax cut package in a special session, and Governor Laura Kelly signed it into law.
The law will officially take effect when it is published in the Kansas Register, which is expected to happen Thursday.
Here’s how much you’re likely to save with the tax break in Senate Bill 1.
Property tax cut in Kansas
A tax reduction will apply to owners of most residential properties from the 2024 tax year.
While property taxes are primarily collected by local governments, one piece of the pie is the state’s $20-milliliter levy, which is used to fund public schools. That levy provides an exemption for a portion of the property’s value, and that exemption is being increased from $42,049 to $75,000.
For owners of homes valued at $42,049 or less, there is no property tax abatement because your property is already exempt from this 20-mill levy.
For owners of homes valued at $75,000 or more, the first-year property tax abatement is $75.79. The amount of the tax abatement will slowly decrease over time because the law repealed an existing provision that adjusted the exemption for inflation based on increases in home values.
For owners of homes valued between $42,049 and $75,000, your relief will be less than $75.79 and will depend on the value of the specific home.
How to calculate your tax reduction under the new law
To calculate your tax reduction under the new law, take the county assessor’s valuation of your property, subtract $42,049 as the old exemption amount, multiply the result by .115 to get the residential tax rate of 11.5%, divide the result by 1,000 since a mill is $1 in tax for every $1,000 of assessed value, then multiply the result by 20 since the state levy is 20 mills.
Lawmakers also eliminated an unfunded program that used state tax revenues to subsidize local property tax cuts.
Over a five-year period, property taxes account for $236 million of the $2 billion in total tax relief provided by the law.
Social security is no longer taxed
Social Security benefits are no longer taxable income in Kansas. The change is retroactive to the beginning of the calendar year.
Such benefits were previously taxed once your income reached $75,000. At that point, there was a cliff where a single dollar more in income could significantly increase your tax burden. Rather than flatten that cliff, politicians opted to exempt Social Security benefits from tax entirely.
If you do not receive Social Security benefits, this rule will not provide you with a tax break. Also, if you receive Social Security benefits but have an income below $75,000, you will not receive a tax break.
The Social Security exemption accounts for $657 million of the $2 billion in tax relief the law provides over five years.
Income tax cuts
The biggest change in the new law concerns the state’s income tax brackets.
Under the old law, there were three progressive income tax brackets. For a single taxpayer, the old brackets were:
- A tax of 3.1% on the first $15,000 of income.
- A tax of 5.25% on any income between $15,000 and $30,000.
- A tax of 5.7% on all income over $30,000.
The income limits have been doubled for married couples filing jointly.
According to the new law, there are two tax brackets. For an individual taxpayer, there are now the following levels:
- 5.2% on the first $23,000 of income.
- A tax of 5.58% on all income over $23,000.
For married couples filing jointly, the income limits are doubled.
But income tax is more complicated than simply multiplying your income by the tax rate. Other factors include the standard deduction and the personal exemption, both of which are increasing.
The law increases the standard deduction by the following:
- For single taxpayers, between $3,500 and $3,605.
- For married taxpayers filing jointly, between $8,000 and $8,240.
- For heads of household: between $6,000 and $6,180.
The personal exemption increases from the old $2,250 for each exemption to $18,320 for married couples filing jointly and to $9,160 for other taxpayers, plus $2,320 for each dependent.
Together, these income tax components account for $1.1 billion of the $2 billion in tax relief the law provides over five years.
What these income tax changes mean for taxpayers
At the request of Democrats in the House of Representatives, the Kansas Legislative Research Department prepared an analysis of how changes to income tax rates, the standard deduction and the personal exemption will affect taxpayers.
The analysis shows that the largest tax cuts, measured as a percentage of the current tax burden, benefit the lowest-income taxpayers. In dollar terms, the largest tax cuts benefit the lowest- and highest-income taxpayers, while middle-income earners get comparatively less. However, middle-income earners benefit far more than they did under previous flat-tax proposals.
For a single adult without dependents:
For a married couple filing a joint tax return without dependents:
For a married couple filing a joint tax return with a dependent:
Childcare tax credit
The state’s existing income tax allowance for household and care costs will be increased from 25% to 50% of the nationwide allowable amount.
This provision, commonly referred to as the child care tax credit, accounts for $30 million of the $2 billion in tax relief the law provides over five years.
Privilege tax for banks
Banks and other financial institutions will receive a special tax cut. The normal tax rate for banks has been reduced from 2.25% to 1.94%, while the rate for other financial institutions has been reduced to 1.93%. The additional taxes for financial institutions have not been changed.
This tax cut represents $20 million of the $2 billion in tax relief the law provides over five years.
Other previously passed tax cut laws
The compromise plan for tax cuts did not include a reduction in sales tax, but that does not mean that there will be no relief for purchases.
Under a 2022 law, the state’s sales tax on groceries would be completely eliminated starting January 1, 2025. Some politicians had hoped to eliminate the tax sooner, but since it took until June to reach a compromise, they could have eliminated the tax only three months earlier.
Shoppers can also look forward to further sales tax relief under House Bill 2098, which passed earlier this year with a bipartisan two-thirds majority despite the governor’s veto. This bill provides sales tax relief on certain purchases, such as custom meat processing and manufacturer coupons, totaling $124 million over five years.
The Senate passed House Bill 410, which was signed by the governor, with a near-unanimous majority. It included several adjustments to income, property and sales taxes, totaling $46 million in tax cuts over five years.
In votes that were nearly along party lines, Kelly’s veto of House Bill 2465 was overridden by a double-digit majority in the House. The bill would have provided tax breaks for adoptions and abortion counseling totaling $67 million over five years.
Jason Alatidd is a statehouse reporter for the Topeka Capital-Journal. He can be reached by email at [email protected]. Follow him on X @Jason_Alatidd.
