Revised 6.23.23
Effective June 1, residents can apply for a possible earnings tax refund for years 2018 through 2022. This process can be initiated through the end of 2023.
This is a one-time opportunity. Starting in 2024, eligible residents must file taxes by the federal tax deadline in order to be considered for an earnings tax refund.
For more information, click here.
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Do you live in Kansas City, Missouri? If so, you’re familiar with the 1% Kansas City earnings tax. People living in Kansas City have to pay it, even if they work in another part of the Kansas City metro area. This tax is also collected from individuals who live on the Kansas side of the state line but work in Kansas City, Missouri. This is one of the complications associated with living and working in a metro area that includes two states.
What Is the Earnings Tax For?
The earnings tax in Kansas City, Missouri, generates revenue that’s used for a variety of city services used by everyone who lives in the Kansas City metro region. This includes the maintenance and improvement of city parks, road repairs, trash collection, snow removal, and the funding of emergency and first-responder teams, among others.
A Change of Process
In past years, taxpayers who were owed a refund of the earnings tax would simply file their taxes and then wait for the check. Not so anymore. On March 2, 2023, the KCMO City Council approved a new process, which included submitting additional items to support the request for a refund due to overpayment of the earnings tax.
Taxpayers had to:
- Submit forms RD109 and RD109NR
- Submit “sufficient” documentation that they’re entitled to a refund. This documentation included work and/or travel orders, travel logs, time and/or payment records, appointment calendars, certain types of receipts, and proof of change of address, such as utility bills, property tax receipts, or lease agreements.
- Submit all documents by the federal income tax filing deadline of April 18, 2023.
The catch here is that the City Council did not publicize this. In fact, they stated that taxpayers who didn’t submit the proper documentation by the required deadline would be denied. They also stated that taxpayers could request a six-month extension to file the return, as long as they complied with city ordinances for validity.
Why Is This News?
Think about the timeline here. The new process was approved on March 2, 2023; the filing deadline was April 18, 2023. That’s only a little over six weeks for taxpayers to figure this out and file for a refund under the new process. Or forgo their refund forever, leaving the money in the city coffers.
How Did This Happen?
We suspect a budget shortfall. The earnings tax generates approximately $292.2 million annually for Kansas City, Missouri. However, it takes much more than that to run a city. The City Council just approved a $2.06 billion budget for fiscal year 2023-2024.
Here’s a quote from the kcmo.gov website that explains it better than we can:
“With the passage of our $2 billion budget today, I am proud to see the City recovering from budget shortfalls suffered as a result of the pandemic—helping ensure we can invest in the issues which matter most to Kansas Citians, such as trash collection, road resurfacing and affordable housing, and helping ensure we can pay the City workforce tasked with delivering on these services a fair wage,” said Mayor Lucas. “Still, Kansas City government is spending at a faster rate than we’re bringing in new revenues, which, without continued fiscal responsibility, will result in significant structural imbalances in the years to come. I thank my council colleagues, our Finance team, and all of our City departments who identified cost-savings opportunities and who have continued their diligent work to keep Kansas City in a healthy fiscal position. I am proud of this budget and all it will do to help us ensure Kansas City remains a great place for all to live.”
It’s Our Job
Taxpayers who regularly work with a certified tax professional have an edge in situations like this. CPAs are required to stay up-to-date on the many changes in tax laws that occur at both the federal and local levels. These professionals had a slim window of opportunity to educate clients on this change and get the required documentation filed before the April 18 deadline. Even so, many taxpayers may have been left hanging due to a lack of transparency by the City Council.
At Adams Accounting Solutions, it’s our job to stay on top of tax changes at the federal and local levels. We educate clients on the impact these changes may have on their situation. Give us a call or stop by our office if you have questions about the Kansas City earnings tax or ways in which you may be affected by this change. We’re happy to help you sort it out.
