Kansas Pass-Through Entity Tax: Rate, Election, and SALT Cap Impact

The Kansas pass-through entity tax lets S-corporations and partnerships pay Kansas income tax at the entity level so their owners avoid the federal $10,000 (now $40,000) cap on state and local tax deductions. Kansas calls it the SALT Parity Act. The entity checks a box on its Kansas return, pays the state tax itself, deducts that payment against federal income before it flows to owners, and gives each owner a credit for their share on the Kansas individual return. The election is annual, but once filed it is irrevocable for that year, so it needs to be right the first time.

Which Entities Qualify

The SALT Parity Act covers S-corporations and partnerships as defined for federal income tax purposes. Multi-member LLCs that elect partnership or S-corporation treatment with the IRS are included. Single-member LLCs taxed as disregarded entities do not qualify, because they are not pass-through entities at the federal level.¹

The entity makes the election, not the owners. Every owner is bound by that choice for the tax year, with no individual opt-out.²

The Rate

For 2022 and 2023, the PTET rate was a flat 5.7%. Starting in 2024, the rate equals the highest Kansas individual income tax rate for the year, so it tracks the top bracket automatically if the legislature adjusts individual rates.³

The tax is calculated on the combined distributive or pro-rata shares of the electing owners. Nonresident owners are taxed only on their share of Kansas-source income. For resident owners, the entity picks one of two methods and must apply it uniformly: either include each resident’s full share of entity income (Kansas and non-Kansas combined), or include only the Kansas-source portion.²

How to Make the Election

The entity elects by checking Box N on Kansas Form K-120S for the year. There is no separate application and no pre-approval. The election is annual, so choosing it one year does not commit the entity to it in later years.²

Once the return is filed with Box N checked, it cannot be undone by amending. That is where most problems come from. If the election turns out to hurt a particular owner’s tax position, there is no fix. Run the numbers for every owner before filing, not after.

Deadlines and Estimated Payments

Form K-120S is due one month after the federal due date for the same type of entity. For calendar-year S-corporations and partnerships, that puts the Kansas return and payment on April 15. A federal extension automatically extends the Kansas deadline by the same period, but the payment is still due at the original date.⁴

Entities expecting a meaningful PTET liability should make estimated quarterly payments. Kansas waived estimates for 2022 only; every year since has required them. Underpayment triggers a penalty of 1% per month on the shortfall, separate from any late-filing penalty.¹

How Owners Get Credit on Their Individual Returns

Because the entity pays the Kansas tax, each electing owner receives a credit on their individual Kansas return equal to their share of the PTET paid. The credit reduces the owner’s Kansas income tax dollar for dollar, so the same income is not taxed twice.³

Owners should confirm that the credit amount on their Schedule K-1 matches what the entity reported before filing individually. Small mismatches are common and easier to fix at the front end than through an amended return.

The Federal Payoff

Under IRS Notice 2020-75, state income tax that a partnership or S-corporation pays at the entity level is deductible in figuring the entity’s federal taxable income. That payment reduces each owner’s share of income on Schedule K-1, which lowers the owner’s federal tax bill.⁵

Entity-level state tax payments are not counted toward the owner’s personal SALT deduction limit. The cap applies to state and local taxes the individual pays directly; here the entity is the taxpayer, so the payment bypasses the cap entirely.⁵

Does the Higher SALT Cap Change the Math?

The $10,000 SALT cap from the 2017 Tax Cuts and Jobs Act was set to expire after 2025. The One Big Beautiful Bill Act raised the cap to $40,000 starting in 2025, with 1% annual increases through 2029. The cap phases down to $10,000 for individual filers with income above $500,000, and married couples filing separately are held to $20,000.

Even at $40,000, the Kansas PTET still pays off in several common situations. Owners whose total state and local taxes exceed the cap still hit the ceiling. High earners in the phasedown range see their effective cap fall well below $40,000. And for owners with substantial Kansas pass-through income, deducting the state tax at the entity level often saves more than trying to fit it under the personal cap at any level.

Before You Check the Box

The election binds every owner, and it cannot be reversed. An entity with a mixed ownership group can easily find that the election helps most owners while costing one or two. That analysis has to happen before the return goes in.

Two things drive most of the variation. First, the method chosen for resident owners (full income versus Kansas-source only) can shift the tax outcome unevenly across the group, especially if some residents have losses from non-Kansas operations. Second, owners with little Kansas income relative to the credit they receive, or with credits and modifications they were counting on at the individual level, may not net out the way they expect. Model the return under both methods, for every owner, before filing.

1
Kansas Department of Revenue. Notice 22-16 – SALT Parity Act
2
Kansas Department of Revenue. Frequently Asked Questions About the SALT Parity Act
3
Kansas Department of Revenue. Notice 24-15 – Changes to SALT Parity Provisions
4
Kansas Department of Revenue. Partnership or S Corporation Income Tax – 2025
5
Internal Revenue Service. Notice 2020-75 – Regarding State and Local Tax Payments by Partnerships and S Corporations