Does Kansas give a credit or deduction for unemployment benefits repaid in a later year?

Plain-English summary

A tax preparer noted that when someone receives unemployment compensation in one year and repays it in a later year, the IRS lets the taxpayer recover the tax (through a claim-of-right credit) — and asked how Kansas handles it. The Department's answer: Kansas gives no relief.

Kansas income tax starts from your federal adjusted gross income and only adds or subtracts items where Kansas law provides a modification under K.S.A. 79-32,117. That statute has no modification for unemployment compensation. So unemployment benefits that were in your federal AGI are taxable in Kansas — and if you must repay those benefits in a later year, Kansas allows neither a subtraction modification nor a credit for the repayment. The end result: the benefits are taxed when received, with no Kansas offset when repaid.

What this means for you

Kansas taxpayers who repaid unemployment benefits

Even though federal law may let you recover tax on repaid benefits, Kansas does not. You cannot subtract the repayment on your Kansas return or claim a Kansas credit for it.

Tax preparers

Do not carry the federal claim-of-right benefit over to the Kansas return. Because K.S.A. 79-32,117 lists no modification for unemployment compensation (in either direction), the Kansas treatment follows federal AGI with no adjustment for the repayment.

Common questions

Q: Is unemployment compensation taxable in Kansas?
A: Yes, to the extent it is included in your federal adjusted gross income, because Kansas has no subtraction modification for it.

Q: If I repay unemployment benefits in a later year, does Kansas give me the money back?
A: No. Kansas allows neither a subtraction nor a credit for the repayment, unlike the federal claim-of-right treatment.

Q: Why does Kansas differ from the IRS here?
A: Kansas conforms to federal AGI but only adjusts it where K.S.A. 79-32,117 provides a modification, and that statute contains none for unemployment compensation or its repayment.

Q: Does this ruling apply to me?
A: A Kansas private letter ruling addresses only the requesting taxpayer and cannot be relied on as precedent by others, though it shows how the Department reasons.

Citations and references

• K.S.A. 79-32,117 — governs the additions and subtractions ("modifications") to federal adjusted gross income for Kansas income tax. The Department states it contains no modification for unemployment compensation, so neither the benefit nor its later repayment is adjusted on the Kansas return.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2016-008

Original ruling text

Private Letter Ruling

Body:

August 12, 2016

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX

Re: Kansas Income Tax

Dear XXXXX

Your correspondence of August 9, 2016, has been referred to me for response. Thank you for your inquiry.

By your e-mail you have requested our advice regarding Kansas income tax. Specifically, your e-mail states:

I am a tax preparer and can’t find anywhere in the Kansas revenue that allows a credit for taxes paid on unemployment compensation when the unemployment was paid to an individual one year and then repaid in the following year. It is very clear how you handle it with the IRS because you note it as a credit after you recalculate the tax liability for the year you received it. I have searched and can’t find how to handle it for Kansas.

As you are no doubt aware, Kansas law requires the use of federal adjusted gross income as the starting point for computing the Kansas income tax. Then certain modifications, either additions or subtractions, may be required in accordance with K.S.A. 79-32,117. In the absence of a specific modification under K.S.A. 79-32,117 those items which are subject to federal tax will be subject to Kansas tax and those items which are exempt from federal tax will be exempt from Kansas tax.

K.S.A. 79-32,117 does not include a modification for unemployment compensation. As a result, if an individual receives Kansas unemployment compensation and it is included in their federal adjusted gross income it is subject to Kansas income tax. On the other hand, if an individual is required to repay unemployment compensation they received in a prior year no modification will be allowed for the repayment.

You are also correct that Kansas does not allow a credit for the repayment of Kansas unemployment compensation.

The end result is that Kansas unemployment compensation received by an individual and included in their federal adjusted gross income is subject to Kansas income tax, but no subtraction modification or credit against tax is available for Kansas unemployment compensation that is repaid to the State.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

JW:jw

NOTE: This opinion letter is based solely on the facts provided in your request for advice. If material facts or information were not disclosed this letter is null and void. This letter will be revoked without further action by the Department if the statutes, administrative regulations, published revenue rulings, or court decisions that materially affect this opinion are changed.

Date Composed: 09/16/2016 Date Modified: 09/16/2016

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