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Kansas residents working in KCMO entitled to a refund

If you are a Kansas resident paying the 1% earnings tax to Kansas City, MO, you may be entitled to a refund.

Background

As we all know, almost every state levies a tax on the income individual taxpayers earn in their state each year. A small handful of local jurisdictions (e.g. cities, counties, school districts) levy an income tax as well. Kansas City, MO, is one of these local jurisdictions.

Any person who earns income in Kansas City, MO, is liable for the 1% earnings tax payable to the city of Kansas City, MO. Until now, the Kansas Department of Revenue disallowed this earnings tax to be taken as a credit on the annual return of its residents. The State only allowed credits to be taken for taxes paid to other states, not other local jurisdictions. A  U.S. Supreme Court case settled on May 18, 2015, has helped push Kansas to change its opinion on this issue.

The Court Case & Kansas’s New Stance

The case in question determined that a state must offer its residents credit for income taxes paid to all jurisdictions outside of its borders. To do otherwise would violate the United States Constitution by taxing the same income twice. The Kansas Department of Revenue held a veto session in July 2015 where it discussed the ramifications of this court case. The case was so monumental that the Kansas Department of Revenue decided to change its interpretation of K.S.A. 79-32, 111, the statute allowing a credit for taxes paid to other states. The Department is now going to include the Kansas City, MO, 1% earnings tax and any other local jurisdiction’s earnings tax to be taken as a credit on a Kansas resident’s Kansas income tax return.

Action Needed

Going forward, Kansas residents can take a credit for the earnings taxes they paid to Kansas City, MO, just as they can take a credit for taxes paid to other states. Additionally, the statute of limitations allows Kansas residents to amend their returns for the most recent three years to take advantage of this law change. If you think that you may benefit from this recent development, contact your WK advisor at (573) 442-6171 or (573) 635-6196.


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Posted By Katie Barthel, CPA on 11-3-2015 | Topics: Client Alerts, News,