Kansas Manufacturing Tax Credits
Minimize your Tax Liability and Maximize Your Manufacturing Business Growth
As 2023 draws to a close, the familiar hustle and bustle of tax planning season is upon us. For manufacturers, this period can be a mix of anticipation and anxiety. After all, every dollar saved in taxes can be reinvested into your business, fueling growth and innovation. Fortunately, the state of Kansas recognizes the pivotal role manufacturers play in the economy and offers tax credits to lighten your tax liability.
Kansas Apprenticeship Act Tax Credit
This year, the Kansas government introduced the Apprenticeship Act Tax Credit through HB 2292. This credit underscores the importance of nurturing the next generation of skilled workers. For every apprentice you hire under a registered apprenticeship program, there’s a credit of up to $2,500 waiting for you per apprentice for tax years starting from Jan. 1, 2023, and ending before Jan. 1, 2026. This credit can be claimed for a maximum of 20 apprentices. The tax credit can be claimed in the year the apprentice completed the probationary period while employed with the employer or in the following taxable year and may be claimed for up to three successive years.
From Jan. 1, 2026, this value increases to $2,750 per apprentice. However, the apprentices must meet the criteria set out, which includes being employed according to a registered apprenticeship agreement for at least 25% of the program’s required time. The credit cannot be transferred or refunded. The Act has allocated $7.5 million in total credits for employers to claim each year.
This tax credit is more than just a financial reprieve. It’s an opportunity for manufacturers to invest in the future and build a team that will drive innovation, efficiency and growth for years to come.
Kansas Aviation & Aerospace Tax Credit
This tax credit is available for tax years beginning Jan. 1, 2022, through Dec. 31, 2026, and is open to both employers and employees in the aviation sector. If you are in this niche, there’s a nonrefundable credit of up to $15,000 per year for you. This amount accounts for 10% of the compensation you provide to qualified employees in their initial five years with your company. Furthermore, if you invest in the education of your employees by reimbursing their tuition, you can claim a credit for 50% of the reimbursed amount. The employee must have begun work within one year of graduating from a qualified program. This portion of the credit is also nonrefundable and cannot be carried forward.
Employees are eligible for a credit of up to $5,000. To qualify for the credit, an individual must be a qualified employee and can claim it for four years following the first year it was allowed, as long as they remain eligible. To be classified as a qualified employee, the person must be a new full-time employee or first contracting with a qualified employer full-time after Jan. 1, 2022. They also must have an undergraduate, graduate or technical degree/certification.
Kansas High-Performance Incentive Program (HPIP Tax Credit)
The Kansas HPIP tax credit was developed to incentivize capital investment, business growth, employee training and education for for-profit businesses in Kansas, such as manufacturing. To claim this credit, your business needs to fall under a qualifying NAICS code, and you must be paying above-average wages. The credit can be as high as 10% of your project costs above specific thresholds.
There’s also an additional incentive for those who prioritize employee training. If you spend at least 2% of your total wages on training and education, you can earn a credit on the amount exceeding this 2%. This initiative not only boosts the skill set of your workforce but also solidifies your position in the market, helping you always one step ahead of the competition.
Kansas Research & Development (R&D) Credit
Innovation is at the heart of manufacturing. Recognizing this, the Kansas R&D tax credit, initially reserved for C Corporations, has been expanded from the 2023 tax year to cover all taxpayers. The credit is now pegged at 10% of the difference between your annual expenditures and the average of your current and two previous years’ expenditures. Plus, there’s an option to transfer this credit if you don’t have a tax liability. The maximum credit allowed in any tax year is limited to 25% of the credit plus any carryforward. The remaining unused credit is carried forward in 25% increments until it is used.
The credit is contingent upon the federally allowed expenses for research and development activities, and these activities must be conducted within the state of Kansas. This ensures that the tax credit directly supports and encourages local R&D efforts.
Taxpayers wishing to claim this credit must file Form K-204 as part of their application process. This form is essential for the Kansas Department of Revenue to assess eligibility and calculate the correct credit amount.
Navigating the complexities of tax credits requires a keen understanding and a strategic approach. It’s not just about claiming what’s available but understanding how each credit can be woven into the broader tapestry of your manufacturing company’s financial strategy. This ensures that you not only benefit in the short term but also position your business for sustainable growth in the long run. Contact an Adams Brown advisor for additional information on these credits and tax planning strategies.