Kansas, Homestead and Local Taxes Tax Year 2018

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1 These exercises stack onto each other. Note: If your district does not have any locales with Intangibles Tax, you may ignore those directions. Exercise 1: Property Tax Relief for Low Income Seniors and Special Senior Intangibles Exemption Taxpayer: Joseph A. Clay, 511-XX-XXXX, DOB: 04/19/1944; retired Home Address and Telephone: 123 Pleasant Ridge, Manhattan, KS 66503, SSA-1099: 1099-INT: Joseph, Box 5: $12,000; total Medicare: $1,328.40; no federal withholding Vanguard Tax Exempt Bond Fund, $4,000; no KS bonds in the fund Property Tax: Owns property and pays property tax of $2,000 Intangibles Rate: 0.75% for Manhattan Township Objective: Complete K-40, K-40H or K-40PT, Form 200 Intangibles. Practice entry of municipal bond fund interest; and adding Other Income of $1 to file $0 AGI. Exercise 2: Modify Above Exercise by Adding Spouse and her Social Security Ellen E. Clay, 512-XX-XXXX, DOB: 06/12/1945. SSA-1099 for Ellen: Box 5: $6,000; total Medicare: $1,328.40; no federal withholding. (NOTE: This is not a spousal Social Security benefit) Objective: Complete K-40, K-40H or K-40PT, and Form 200. Exercise 3: For this exercise ONLY, treat Joseph s social security as Railroad Retirement Tier 1. Objective: Complete K-40, K-40H or K-40Pt. Observe how Kansas treats Railroad Tier 1 retirement differently from Social Security on Homestead. In 2018 TaxSlayer Tier 1 is included in Household Income, you must subtract $12,000 from Social Security and add $12,000 to Other RR, Pensions. Before moving on, switch Homestead Household income back to remove Railroad tier from the scenario. KANSAS STTC 1

2 Exercise 4: Add Pension and Partially Tax-Exempt Interest 1099-R for Taxpayer: Defense Finance and Accounting SVC US Military Pay, P.O. Box 7139, London KY Payer ID: 11-2XXXXXX Gross distribution: $12,800; taxable distribution: $12,800; distribution code: 7, federal tax withholding: $1, INT: UMB Bank - Interest on U.S. Treasury obligations: $400 Objective: Complete K-40, K-40H or K-40PT. Practice entry of U.S. Treasury obligations & Kansas tax-exempt pension Exercise 5: Add daughter as household member. Their daughter, Marilyn CLAY, has returned home and has lived with them for the full year. Her earnings for 2018 were $16,000. SSN: 513-XX-XXXX; DOB: 06/20/1989. She has minimum essential health insurance coverage that is provided by her employer. Objective: Complete K-40, K-40H or K-40PT Exercise 6: Adjust income Change the amount on the 1099-R to $47,000 and the amounts on SSA-1099s to $24,000 and $12,000. Add federal withholding: $4,700 on 1099R and $1200 on both SSA-1099s. Objective: Complete Federal, K-40 Exercise 7: Tax-exempt Kansas municipal bond interest 1099-INT: U.S. Bank Interest on Kansas municipal bonds: $100 Objective: Complete Federal, K-40 Exercise 8: Treat Social Security as Railroad Retirement Tier 1 For Joseph, treat his social security earnings as Railroad Retirement Tier 1. Note the effect that this has his state income tax liability. Explain. (Hint: see KS Schedule S, line 11) Objective: Complete K-40. Explain the effect that this has on the Kansas tax liability. KANSAS STTC 2

3 Exercise 9: Schedule A Change Joseph s Railroad Retirement Tier 1 back to being treated as Social Security. Schedule A: In addition to the $2,000 of property tax, the Clays have $5,000 of mortgage interest reported on Form 1098, $6,000 of Medicare supplemental health insurance, $6,000 for Joseph s hearing aids and a $8,000 donation to their church. Let TaxSlayer calculate sales tax for zip code Exercise 10: Use itemized deductions when less than the standard deduction Force federal itemized deduction instead of the standard deduction KANSAS STTC 3

4 Exercise 1 Results: KAGI = $4,000 K-40PT refund = $1,500 Exercise 2 Results: KAGI = $4,000 K-40H refund = $504 (Including 100% of Social Security makes income too high for PT) Exercise 3 Results: KAGI = $4,000 K-40H refund = $315 Exercise 4 Results: KAGI = $4,000 K-40H refund = $35 Exercise 5 Results: KAGI = $4,000 K-40H refund = $0 The addition of Marilyn s income results in $0 Homestead refund. Exercise 6 Results: Fed refund = $1,676 KAGI = $4,000 Exercise 7 Results: FAGI = $75,075 Fed refund = $1,664 KAGI = $31,675 K-40 amount owed = $567 Explanation: Federal refund is reduced even though the $100 was tax exempt because adding this $100 to the taxable Social Security calculation made more of Social Security taxable Explanation continued, Effect on K-40: By the amount of taxable Social Security increasing, the Federal AGI increases to $75,075. When the Federal AGI is greater than $75,000 all of the federally taxable Social Security income becomes taxable at the state level. Thus, the KAGI increases dramatically and the taxpayer now owes Kansas tax. Exercise 8 Results: KAGI = $13,225 Explanation: Because Railroad Retirement Tier 1 is tax exempt, Kansas tax owed is $0. KANSAS STTC 4

5 Exercise 9 Results: Federal Itemized Deductions = $25,760 Federal Standard Deduction = $26,600 K-40 Standard Deduction = $8,900 Federal Refund = $1,664 Kansas Amount Due = $567 Net = $1,097 refund Exercise 10 Results: Federal Itemized Deductions = $25,760 Federal Standard Deduction = $26,600 K-40 Itemized Deductions = $16,013 Federal Refund = $1,562 Kansas Amount Due = $346 Net = $1,216 refund Note: The increased federal taxes caused by taking the federal itemized deduction are more than offset by the reduction in Kansas taxes. Also Note: the Kansas deductions are 50 percent of the federal deductions for medical, property taxes, and mortgage interest but include 100 percent of the federal charitable deduction. Schedule S Part C: C1. $4,513 C2. $1.000 C4. $2,500 C5. $8,000 C6. $16,013 Total Itemized KANSAS STTC 5