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The information below provides an overview of the major changes to state and federal income tax laws.  Please choose one of the categories below to learn more about the changes.

Kentucky Tax Changes - Tax Year 2019

For tax years beginning on or after January 1, 2019

Individual Estimated Payments

2019 estimated tax rules changed to generally follow federal guidelines for individuals:

  • Four installments at 25% of the estimated tax due each:
    • April 15, June 15, September 15, and January 15 of the following tax year
  • Allow annualized income installments
  • Declaration penalty replaced with "addition to tax" penalty

For more information regarding Kentucky's updated estimated tax payment guidelines, please see the 2019 740-ES Instructions and KY-TAM-19-02.

Itemized Deductions

The following itemized deductions claimed on Schedule A have been restored for tax years beginning on or after January 1, 2019:

  • Investment interest deduction under IRC Section 163
  • Gambling loss deduction under IRC Section 165(d)

Active Duty Military

The definition of "active duty" military has been expanded to include training.

Enhanced Family Size Tax Credit

For tax years 2019 and 2020 an "income tax gap credit" was created in addition to the Family Size Tax Credit. This credit is only available to those that are eligible for the Family Size Tax Credit.

​Poverty
Range
​Family Size:  
One
​Family SIze:  
Two
​Family Size: 
Three
​100-104%
​$11
​$7
$3​
​104-108%
​$20
​$13
$6​
​108-112%
​$29
$18​$6​
​112-116%
​$37
$22​
$6​
​116-120%
​$45
$24​$4​
​120-124%
​$51
$26​$0​
​124-127%
​$58
$27​$0​
​127-130%
​$64
$28​$0​
​130-133%
​$69
$28​$0​




Federal Tax Changes - Tax Year 2019

For tax years beginning on or after January 1, 2019

Kentucky updated its federal conformity date to December 31, 2018.



Upcoming Kentucky Tax Changes - Tax Year 2020

For tax years beginning on or after January 1, 2020

Depreciation Changes

For tax years beginning on or after January 1, 2020, the IRC Section 179 expense deduction is increased to $100,000 for Kentucky. The following guidelines apply:

  • Property placed into service from September 10, 2001 through December 31, 2019:
    • Use December 31, 2001 IRC ($25,000 Section 179 maximum)
  • Property placed into service on or after January 1, 2020:
    • Use December 31, 2003 IRC ($100,000 Section 179 maximum)



Kentucky Tax Changes - Tax Year 2018

Tax Rates

For tax years beginning on or after January 1, 2018

The previous rate brackets have been replaced with a flat 5% tax rate.

Deductions

Effective January 1, 2018, the following deductions were eliminated and can no longer be used to reduce Kentucky income:

  • Premiums paid for health insurance coverage
  • Premiums paid for long-term care insurance
  • Master Tobacco Settlement payments
  • The value of property leasehold interests donated and used for homeless shelters 

Itemized Deductions

Kentucky eliminated nearly all itemized deductions, while for federal tax purposes most itemized deductions remain the same.  For information on federal tax changes please contact the IRS.

The following items can still be claimed as Kentucky itemized deductions:

  • Home mortgage interest and points
  • Charitable contributions
  • Some miscellaneous deductions
    • Amortizable premium on taxable bonds (IRC Sec 171)
    • Federal estate tax on income in respect of a decedent (IRC Sec 691)
    • Repayments of more than $3,000 under a claim of right (IRC Sec 1341)
    • Unrecovered investment in an annuity (IRC Sec 72)
    • Loss from other activities from Schedule K-1 (Form 1065-B, box 2)

The following items can no longer be claimed as Kentucky itemized deductions:

  • Investment interest (IRC Sec 163)
  • Taxes (IRC Sec 164)
  • Casualty or theft losses and gambling losses (IRC Sec 165)
  • Medical and dental care expenses (IRC Sec 213)
  • Moving expenses (IRC Sec 217)
  • Other miscellaneous deductions subject to the 2% floor (IRC Sec 67)

Other changes include:

  • The itemized deduction dollar limit cap was eliminated
  • Investment income earned on a STABLE account is no longer taxed
  • The pension exclusion decreased from $41,110 to $31,110. You are still entitled to exclude more than $31,110 if you are retired from the federal government, the Commonwealth of Kentucky, or a Kentucky local government and a portion of your pension income is attributable to federal or Kentucky government service performed prior to January 1, 1998.  Schedule P Calculator
  • $10 personal tax credit for taxpayers and dependents were eliminated
  • Personal tax credits for over-age-65, blind, and National Guard members were maintained

Tax Credits

  • Inventory Tax Credit – a non-refundable and non-transferable income tax credit is allowed for ad valorem (property) taxes timely paid on inventory and is phased in as follows:
    • 2018 – 25% of tax paid
    • 2019 – 50% of tax paid
    • 2020 – 75% of tax paid
    • 2021 and forward - 100% of tax paid
    • Click here to learn more about this tax credit and DOR's new downloadable Excel-based inventory tax credit calculator
  • Film Tax Credit – new applications are non-refundable and non-transferable after April 27, 2018. An annual cap of $100 million applies to 2018 and thereafter. Commercials no longer qualify for the credit.


Federal Tax Changes - Tax Year 2018

Kentucky updated its federal conformity date to December 31, 2017, and adopted the following changes in the Tax Cuts and Jobs Act (TCJA):

  • Net Operating Losses limitations (IRC Sec 172)
  • Net Interest Expense Limitations (IRC Sec 163(j))
  • Repeal of the Domestic Production Activity Deduction (IRC Sec 199)
  • Repeal of the exclusion for qualified moving expense reimbursements (IRC Secs 82 and 132)
  • Repeal of the deduction for qualified moving expenses (IRC Sec 217)
  • Repeal of the deduction for alimony payments and the inclusion of alimony received in taxable income for divorce agreements entered into after December 31, 2018 (IRC Secs 61 and 215)

Kentucky did NOT adopt the following changes in the TCJA:

  • Full Depreciation Expensing (IRC Sec 168(k))
  • Deduction for Qualified Business Income of Pass-Through Entities (IRC Sec 199A)

Read Frequently Asked Questions for Individual Income Tax

Kentucky Tax Changes

Kentucky made several changes to its corporation and pass-through entity income tax laws.  This includes changes to tax rates, apportionment calculations, group filing methods, NOL provisions, electronic filing requirements, and tax credits.

 

Tax Administration

Protest Time Period Changes
For notices of tax due and refund denials issued on or after July 1, 2018, the time to file a protest increased from 45 to 60 days. This 60-day protest period applies to tangible personal property tax bills. These changes do not apply to protests of real property tax assessments.

Federal Audit Final Determinations
The due date for submission to Kentucky increases from 30 to 180 days.  Taxpayers now have 180 days to submit an amended income tax return to Kentucky from the date the federal audit final determination is issued by the IRS.


Tax Rates

For tax years beginning on or after January 1, 2018:

The previous rate brackets have been replaced with a flat 5% tax rate.


Apportionment 

For tax years beginning on or after January 1, 2018:

  • Single Sales Factor
  • Market Based Sales Sourcing
  • Three-factor apportionment retained for providers.


2019


Estimated Payments

For tax years beginning on or after January 1, 2019:

2019 estimated tax rules and penalties changed to generally follow federal rules for corporations and pass-through entities

  • Four installments at 25% of the estimated tax due on:
    • April 15, June 15, September 15, December 15
  • Allow Annualization and Adjusted Seasonal Installment Methods
  • Declaration Penalty replaced with "Addition to Tax" Penalty
  • See 2019 720ES Instructions
  • KY-TAM-19-02

 

New Deferred Tax Deduction

Allows publicly traded taxpayers to offset the effects of combined reporting tax changes for financial statement reporting purposes beginning in 2024:

  • See Schedule DTD (due July 1, 2019)
  • Additional info found in KY-RP-19-02

 

Section 179 Expense Deduction

IRC §179 expense deduction increased to $100,000 for Kentucky in 2020:

  • Property placed into service 9/10/01 - 12/31/19
    • Use December 31, 2001 IRC ($25,000 § 179 maximum)
  • Property placed into service on or after 1/1/20
    • Use December 31, 2003 IRC ($100,000 § 179 maximum)

 

Corporate Extensions

For valid extensions filed on or after June 27, 2019:

  • C-Corporations allowed 7 month extension to file complete and accurate return

 

Bank Franchise Tax Repealed Effective 2021

For tax years beginning on or after January 1, 2021:

  • Bank Franchise Tax repealed and replaced with Corporation Income Tax and LLET
    • Applies to banks, savings and loan associations, and other financial institutions doing business in Kentucky.
    • Short year returns required for bank franchise tax returns with a fiscal year end

Statute of Limitations Extended for LLET Assessments of Pass-through Entities

If a pass-through entity is billed for LLET, the shareholders, partners, or members are allowed the greater of the ordinary statute of limitations or 180 days from the date an assessment is final to file amended returns

 

Group Filing Methods and Net Operating Loss Provisions

For tax years beginning before January 1, 2019:

  • Filing: Mandatory Nexus Consolidated or Separate Entity
  • NOL: 2018 is the final year for 50% NOL limitation for mandatory nexus consolidated group filers

For tax years beginning on or after January 1, 2019:

  • Filing:
    • Unitary Combined Group filing required; or
    • Group election for a 48 month same-as-federal consolidated group filing; otherwise
    • Separate entity filing if not part of a unitary or consolidated group
  • Unitary Combined Filing:
    • Combined group includes domestic corporations (with some exceptions) involved in unitary business
    • Unitary business means related corporations between which there is a significant flow of value
    • 50% voting stock ownership required for combined group
    • Distributive share of pass-through income counts as part of corporation business income
    • Each entity calculates its own apportionment fraction
    • Group apportionable income is the sum of members' individual net incomes
    • Intercompany transactions are eliminated from group income and apportionment calculations
    • NOLs can be shared among members of a combined group; tax credits cannot be shared.
  • NOL:
    • Adopt the 80% federal NOL limitation under IRC Sec 172(a) for NOL generated after January 1, 2018
    • Adopt federal unlimited carryforward of NOL generated after January 1, 2018
    • Kentucky does not allow a NOL carryback for tax years beginning on or after January 1, 2005 
    • Unitary Group NOL Sharing
      • Kentucky Net Operating Loss (KNOL) incurred by a taxpayer member prior to inclusion in a unitary combined group may be deducted from the apportioned income of:
        • That taxpayer member which originally incurred the KNOL *
        • Another taxpayer member, but in no case shall the deduction reduce any taxpayer member's Kentucky apportioned taxable income by more than 50% in any taxable year
      • KNOL incurred by a taxpayer member while included in a unitary combined group may be deducted from the apportioned income of:
        • That taxpayer member which originally incurred the KNOL*
        • Another taxpayer member that was a taxpayer member in the same combined group in the year in which the KNOL was originally incurred *
      • If the taxable income results in a net loss for a taxpayer member of the combined group, that taxpayer member has a KNOL
      • Any amount of NOL carryover that is deducted by another taxpayer member of the combined group shall reduce the amount of net operating loss carryover that may be carried over by the taxpayer member that originally incurred the loss
    • All KNOL are subject to the limits specified in IRC Section 172 and KRS 141.011
    • No prior year KNOL carryforward shall be available to entities that were not doing business in Kentucky in the year in which the loss was incurred

  

Electronic Filing

For tax years beginning on or after January 1, 2019:

E-Filing required for separate corporation and pass-through entity returns with federal gross receipts exceeding $1,000,000

  

Tax Credit Changes

Inventory Tax Credit – a non-refundable and non-transferable income tax credit allowed for ad valorem (property) taxes timely paid on inventory. Phased in as follows:

  • 2018 – 25% of tax paid
  • 2019 – 50% of tax paid
  • 2020 – 75% of tax paid
  • 2021 and forward – 100% of tax paid
  • Click here to learn more about this tax credit and DOR's new downloadable Excel-based inventory tax credit calculator
  • For taxable years beginning on or after January 1, 2019, heavy rental equipment is now subject to ad valorem tax and thus eligible for the inventory tax credit. 

Film Tax Credit – new applications are non-refundable and non-transferable after April 27, 2018.

  • An annual cap of $100 million applies to 2018 and thereafter.
  • Commercials no longer qualify for the credit.

Recycling Tax Credit

  • Enhancements to major recycling credit program
    • 400 employees at the project location (previously 750)
    • Credit for 25% of the installed cost of the equipment (previously 50%)
    • 30 year life (previously 10)
    • Credit may offset up to 75% of each tax liability for all years available (previously 50%)
  • Annual regular recycling credit limitation clarified in statute
    • 1st year, limited to offset lesser of 10% of the allowable tax credit or 25% of the tax liability
    • All subsequent years, limited to offset up to 25% of the tax liability

Farmer Small Business Tax Credit

  • Expansion of the Small Business Tax Credit to Farmers (SB 246)
  • Shares $3 million FY cap with the Small Business Tax Credit


Federal Tax Changes

Kentucky updated its federal conformity date and adopted the following changes in the Tax Cuts and Jobs Act (TCJA):

  • Net Operating Losses limitations (IRC Sec 172)
  • Net Interest Expense Limitations (IRC Sec 163(j))
  • Repeal of the Domestic Production Activity Deduction (IRC Sec 199)
  • Taxation of Foreign Derived Intangible Income (FDII) (IRC Sec. 250)

Kentucky did NOT adopt the following changes in the TCJA:

  • Full Depreciation Expensing (IRC Sec 168(k))
  • Deduction for Qualified Business Income of Pass-Through Entities (IRC Sec 199A)

Kentucky's Treatment of Global Intangible Low-Taxed Income (GILTI) - TAM 18-02

Read Frequently Asked Questions for Corporation and Pass-Through Entity Taxes

 

Internal Revenue Code Reference Date

For tax years beginning on or after January 1, 2018:

  • IRC reference date updated to December 31, 2017

For tax years beginning on or after January 1, 2019:

  • IRC reference date updated to December 31, 2018





Updates

  • The electronic filing threshold for withholding statements (W-2, W-2G, and 1099 Series) has been lowered from 100 to 26 forms. Withholding statement reporting is January 31, 2019, and no extensions are available.
  • DOR will no longer provide blank Forms W-2. Forms are available at office supply stores.
  • Paper withholding statements (under 26) must either be submitted on a new Form K-5 or in an accepted electronic format beginning in January 2019. The new form will be available on DOR's website and can be electronically submitted.
  • The transmitter report (Form 42A806) is still required to accompany CD's and other physical media.
  • As in prior years, W-2 data files must be submitted in the Social Security Administration's EFW2 format with state RS Records defined by DOR. W-2G and 1099 Series data files must be submitted in the IRS Publication 1220 format with state B Records defined by DOR.

Resources

The following resources are available to assist employers withhold correctly from employee wages.

Read Frequently Asked Questions for Withholding Tax

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