Of the 50 states and the District of Columbia, 42 apply a broad-based income tax. For the convenience of taxpayers and the state, as well as ease of legal application, many states incorporate substantial portions of the federal Internal Revenue Code (IRC) into their own state income taxes.
This incorporation, often referred to as tax conformity, may take several forms, such as the starting point for determining the tax base, utilizing federal provisions for deductions from income, or applying all or a portion of federal tax credits to state tax liability. Additionally, states may generally adopt federal conformity and then have specific modifications to that general provision.
Starting Point Conformity
Most states with an income tax use a reference to the IRC as the starting point for determining state income tax. The two primary options are either federal adjusted gross income (AGI) or federal taxable income. AGI incorporates the federal adjustments to gross income, such as educator expenses, student loan interest, alimony payments, and contributions to a retirement account. Taxable income incorporates those provisions as well as the federal standard or itemized deductions and personal exemption amounts.
Additionally, states may adopt “rolling conformity” to these provisions, which results in the state automatically using the current federal provision or adopting the federal provision as of a date certain, which results in the state disregarding changes to federal tax law made after the specified date.
Kansas uses rolling conformity of federal AGI as the starting point for determining the amount of income that will be subject to Kansas income tax.
For states that use federal taxable income as their starting point, the issue of deductions has largely already been addressed at the federal level. For states that use AGI as a starting point, the state may further consider whether to adopt conformity of some or all of the federal itemized and standard deductions.
Deductions reduce AGI to a lower amount to be used as taxable income. Taxpayers are generally required to choose between itemizing deductions based on specifically allowable expenses or taking a standard deduction, which allows the taxpayer to deduct a specific amount regardless of the amount of actual deductible expenses the taxpayer may have incurred.
Kansas allows taxpayers to either itemize or take a standard deduction. While the Kansas itemized deductions partially conform to the federal deductions, the provisions are not identical. Additionally, the Kansas standard deduction amounts differ from the federal amounts. Prior to 2021, Kansas taxpayers were only permitted to claim itemized deductions on their state tax returns if they itemized deductions on their federal returns.
Many states partially adopt certain federal tax credits for purposes of state income taxes by virtue of conformity.
Kansas is one of 32 states that allows taxpayers to claim a portion of the federal earned income tax credit on their state returns. Kansas allows taxpayers to claim 17 percent of the federal amount.
Additionally, Kansas allows taxpayers to claim 25 percent of the federal child and dependent care credit on their state tax returns.
Modifications to Conformity
While Kansas does adopt general rolling conformity to federal AGI, the State uses provisions referred to as addition and subtraction modifications to limit some federal adjustments to gross income and provide additional adjustments that are specific to Kansas. These modifications largely relate to certain categories of retirement and Social Security income, interest income on government debt, and contributions to savings accounts for education and disabled individuals.