(1) An annual tax shall be paid for each taxable year by every resident individual of this state upon his or her entire net income as defined in this chapter. The tax shall be determined by applying the rates in subsection (2) of this section to net income and subtracting allowable tax credits provided in subsection (3) of this section.
(2) (a) As used in this subsection:
1. “Balance in the BRTF at the end of a fiscal year” means the budget reserve trust fund account established in KRS § 48.705 and includes the following amounts and actions resulting from the final close of the fiscal year:
a. The amount of moneys in the fund at the end of a fiscal year;
b. All close-out actions related to a budget reduction plan under KRS
48.130 or as modified in a branch budget bill; and
c. All close-out actions related to the surplus expenditure plan under
KRS § 48.140 or as modified in a branch budget bill;
2. “GF appropriations” means the authorization by the General Assembly to expend GF moneys, excluding:
a. Continuing appropriations;
b. Any appropriation to the budget reserve trust fund; and
c. Any lump-sum appropriation to a state-administered retirement system, as defined in KRS § 7A.210, that is in excess of the appropriations specifically budgeted to meet the recurring statutorily required contributions or recurring actuarially determined contributions for a state-administered retirement system under KRS § 21.525, 61.565, 61.702, 78.635, 78.5536, or
161.550, as applicable;
3. “GF moneys” means receipts deposited in the general fund defined in KRS § 48.010, excluding tobacco moneys deposited in the fund established in KRS § 248.654;
4. “IIT equivalent” means the amount of reduction in GF moneys resulting from a one (1) percentage point reduction to the individual income tax rate and shall be calculated by dividing the actual individual income tax receipts for the fiscal year under consideration by:
a. The sum of:
i. The individual income tax rate, expressed as a percentage, for the first six (6) months of the fiscal year; and
ii. The individual income tax rate, expressed as a percentage, for the second six (6) months of the fiscal year; and
b. Dividing the sum determined in subdivision a. of this subparagraph by two (2);
5. “Reduction conditions” means:
a. The balance in the BRTF at the end of a fiscal year shall be equal to or greater than ten percent (10%) of the GF moneys for that fiscal year; and
b. GF moneys at the end of a fiscal year shall be equal to or greater than GF appropriations for that fiscal year plus the IIT equivalent for that fiscal year; and
6. “Tax rate reduction” means the current tax rate minus five-tenths of one percent (0.5%).
(b) For taxable years beginning on or after January 1, 2023, but prior to January
1, 2024, the tax shall be four and one-half percent (4.5%) of net income.
(c) For taxable years beginning on or after January 1, 2024, the tax shall be four percent (4%) of net income.
(d) 1. For taxable years beginning on or after January 1, 2025, the income tax rate may be reduced according to the annual process established in subparagraphs 2. to 5. of this paragraph.
2. The Office of State Budget Director shall review the reduction conditions for the fiscal year 2022-2023 no later than September 1,
2023.
3. After reviewing the reduction conditions under subparagraph 2. of this paragraph, the Office of State Budget Director shall, no later than September 5, 2023, report to the Interim Joint Committee on Appropriations and Revenue:
a. Whether the reduction conditions for the fiscal year 2022-2023 have been met; and
b. The amounts associated with each item within the reduction conditions used for making that determination.
4. a. If the reduction conditions have been met for fiscal year 2022-
2023, the General Assembly may take action to reduce the rate in paragraph (c) of this subsection for the taxable year beginning January 1, 2025.
b. If the reduction conditions have not been met for fiscal year 2022-
2023 or the General Assembly does not take action to reduce the rate in paragraph (c) of this subsection, the department shall maintain the rate in paragraph (c) of this subsection for the taxable year beginning January 1, 2025.
5. a. The Office of State Budget Director shall implement an annual process to review and report future reduction conditions at the same time and in the same manner for each fiscal year subsequent to the fiscal year 2022-2023 and each taxable year subsequent to the taxable year beginning January 1, 2025.
b. The department shall not implement an income tax rate reduction without an action by the General Assembly.
c. The annual process shall continue until the income tax rate is zero.
(e) For taxable years beginning on or after January 1, 2018, but before January 1,
2023, the tax shall be five percent (5%) of net income.
(f) For taxable years beginning after December 31, 2004, and before January 1,
2018, the tax shall be determined by applying the following rates to net income:
1. Two percent (2%) of the amount of net income up to three thousand dollars ($3,000);
2. Three percent (3%) of the amount of net income over three thousand dollars ($3,000) and up to four thousand dollars ($4,000);
3. Four percent (4%) of the amount of net income over four thousand dollars ($4,000) and up to five thousand dollars ($5,000);
4. Five percent (5%) of the amount of net income over five thousand dollars ($5,000) and up to eight thousand dollars ($8,000);
5. Five and eight-tenths percent (5.8%) of the amount of net income over eight thousand dollars ($8,000) and up to seventy-five thousand dollars ($75,000); and
6. Six percent (6%) of the amount of net income over seventy-five thousand dollars ($75,000).
(3) (a) The following tax credits, when applicable, shall be deducted from the result obtained under subsection (2) of this section to arrive at the annual tax:
1. a. For taxable years beginning before January 1, 2014, twenty dollars
($20) for an unmarried individual; and
b. For taxable years beginning on or after January 1, 2014, and before January 1, 2018, ten dollars ($10) for an unmarried individual;
2. a. For taxable years beginning before January 1, 2014, twenty dollars ($20) for a married individual filing a separate return and an additional twenty dollars ($20) for the spouse of taxpayer if a separate return is made by the taxpayer and if the spouse, for the calendar year in which the taxable year of the taxpayer begins, had no Kentucky gross income and is not the dependent of another taxpayer; or forty dollars ($40) for married persons filing a joint return, provided neither spouse is the dependent of another taxpayer. The determination of marital status for the purpose of this section shall be made in the manner prescribed in Section 153 of the Internal Revenue Code; and
b. For taxable years beginning on or after January 1, 2014, and before January 1, 2018, ten dollars ($10) for a married individual filing a separate return and an additional ten dollars ($10) for the spouse of a taxpayer if a separate return is made by the taxpayer and if the spouse, for the calendar year in which the taxable year of the taxpayer begins, had no Kentucky gross income and is not the dependent of another taxpayer; or twenty dollars ($20) for married persons filing a joint return, provided neither spouse is the
dependent of another taxpayer. The determination of marital status for the purpose of this section shall be made in the manner prescribed in Section 153 of the Internal Revenue Code;
3. a. For taxable years beginning before January 1, 2014, twenty dollars ($20) credit for each dependent. No credit shall be allowed for any dependent who has made a joint return with his or her spouse; and
b. For taxable years beginning on or after January 1, 2014, and before January 1, 2018, ten dollars ($10) credit for each dependent. No credit shall be allowed for any dependent who has made a joint return with his or her spouse;
4. An additional forty dollars ($40) credit if the taxpayer has attained the age of sixty-five (65) before the close of the taxable year;
5. An additional forty dollars ($40) credit for taxpayer’s spouse if a separate return is made by the taxpayer and if the taxpayer’s spouse has attained the age of sixty-five (65) before the close of the taxable year, and, for the calendar year in which the taxable year of the taxpayer begins, has no Kentucky gross income and is not the dependent of another taxpayer;
6. An additional forty dollars ($40) credit if the taxpayer is blind at the close of the taxable year;
7. An additional forty dollars ($40) credit for taxpayer’s spouse if a separate return is made by the taxpayer and if the taxpayer’s spouse is blind, and, for the calendar year in which the taxable year of the taxpayer begins, has no Kentucky gross income and is not the dependent of another taxpayer; and
8. An additional twenty dollars ($20) credit shall be allowed if the taxpayer is a member of the Kentucky National Guard at the close of the taxable year.
(b) In the case of nonresidents, the tax credits allowable under this subsection shall be the portion of the credits that are represented by the ratio of the taxpayer’s Kentucky adjusted gross income as determined by KRS § 141.019 to the taxpayer’s adjusted gross income as defined in Section 62 of the Internal Revenue Code. However, in the case of a married nonresident taxpayer with income from Kentucky sources, whose spouse has no income from Kentucky sources, the taxpayer shall determine allowable tax credit(s) by either:
1. The method contained above applied to the taxpayer’s tax credit(s), excluding credits for a spouse and dependents; or
2. Prorating the taxpayer’s tax credit(s) plus the tax credits for the taxpayer’s spouse and dependents by the ratio of the taxpayer’s Kentucky adjusted gross income as determined by KRS § 141.019 to the total joint federal adjusted gross income of the taxpayer and the taxpayer’s spouse.
(c) In the case of a part-year resident, the tax credits allowable under this subsection shall be the portion of the credits represented by the ratio of the
taxpayer’s Kentucky adjusted gross income as determined by KRS § 141.019 to the taxpayer’s adjusted gross income as defined in Section 62 of the Internal Revenue Code.
(4) An annual tax shall be paid for each taxable year as specified in this section upon the entire net income except as herein provided, from all tangible property located in this state, from all intangible property that has acquired a business situs in this state, and from business, trade, profession, occupation, or other activities carried on in this state, by natural persons not residents of this state. A nonresident individual shall be taxable only upon the amount of income received by the individual from labor performed, business done, or from other activities in this state, from tangible property located in this state, and from intangible property which has acquired a business situs in this state; provided, however, that the situs of intangible personal property shall be at the residence of the real or beneficial owner and not at the residence of a trustee having custody or possession thereof. For taxable years beginning on or after January 1, 2021, but before January 1, 2025, the tax imposed by this section shall not apply to a disaster response employee or to a disaster response business. The remainder of the income received by such nonresident shall be deemed nontaxable by this state.
(5) Subject to the provisions of KRS § 141.081, any individual may elect to pay the annual tax imposed by KRS § 141.023 in lieu of the tax levied under this section.
(6) A part-year resident is subject to taxation, as prescribed in subsection (1) of this section, during that portion of the taxable year that the individual is a resident and, as prescribed in subsection (4) of this section, during that portion of the taxable year when the individual is a nonresident.
Effective: March 24, 2023
History: Amended 2023 Ky. Acts ch. 3, sec. 1, effective June 29, 2023; and ch. 92, sec.
21, effective March 24, 2023. — Amended 2022 Ky. Acts ch. 212, sec. 1, effective July 14, 2022. — Amended 2021 Ky. Acts ch. 31, sec. 2, effective June 29, 2021. — Amended 2018 Ky. Acts ch. 171, sec. 57, effective April 14, 2018; and ch. 207, sec.
57, effective April 27, 2018. — Amended 2013 Ky. Acts ch. 119, sec. 16, effective
June 25, 2013. — Amended 2005 Ky. Acts ch. 168, sec. 5, effective March 18, 2005.
— Amended 1990 Ky. Acts ch. 476, Pt. VII D, sec. 632, effective April 11, 1990. — Amended 1976 Ky. Acts ch. 77, Pt. I, sec. 1. — Amended 1974 Ky. Acts ch. 362, sec.
1. — Amended 1972 Ky. Acts ch. 84, Pt. II, sec. 2. — Amended 1970 Ky. Acts ch.
216, sec. 5. — Amended 1966 Ky. Acts ch. 176, Part I, sec. 3. — Amended 1964 Ky. Acts ch. 76, sec. 1. — Amended 1962 Ky. Acts ch. 124, sec. 2. — Amended 1960 Ky. Acts ch. 5, Art. III, sec. 2. — Amended 1958 Ky. Acts ch. 3, sec. 1. — Amended 1956 (4th Extra. Sess.) Ky. Acts ch. 4, sec. 2. — Amended 1954 Ky. Acts ch. 79, sec. 2. — Amended 1952 Ky. Acts ch. 124, sec. 1. — Amended 1948 Ky. Acts ch. 93, sec. 2. — Amended 1946 Ky. Acts ch. 234, sec. 6. — Recodified 1942 Ky. Acts ch. 208, sec. 1, effective October 1, 1942, from Ky. Stat. sec. 4281b-14.
Legislative Research Commission Note (6/29/2023). This statute was amended by 2023
Ky. Acts chs. 3 and 92, which do not appear to be in conflict and have been codified together.
Legislative Research Commission Note (7/14/2022). This statute was amended during the 2022 Regular Session by House Bill 8, a bill which was subsequently amended by 2022 House Bill 659 prior to the section’s effective date. The modifications specified in House Bill 659 have been incorporated in codification.
Legislative Research Commission Note (4/27/2018). Pursuant to 2018 Ky. Acts ch.
207, sec. 153, the amendments made to this statute in that Act apply to taxable years beginning on or after January 1, 2018.
Legislative Research Commission Note (3/18/2005). 2005 Ky. Acts ch. 168, sec. 165, provides that this section shall apply to tax years beginning on or after January 1,
2005.