Overview: New Kentucky legislation drastically changes Kentucky corporate and personal income tax provisions effective for tax years after 2017.
Effective Date: Tax years beginning after 2017.
Details:
On April 13, 2018, Kentucky Governor Matt Bevin’s veto of H.B. 366 was overridden by the State Legislature. This legislation which makes extensive changes to Kentucky corporate and personal income tax provisions.
Specifically, H.B. 366 updates the Internal Revenue Code (Code) reference date for determining Kentucky income tax liability from December 31, 2015 to December 31, 2017. The update applies to tax years beginning after 2017. It does not apply to any IRC amendments made after 2017, except those extending provisions that would otherwise expire on that date.
Elimination of deductions:
Effective for tax years after 2017, taxpayers computing Kentucky income tax liability may not subtract from their federal income base:
- individual retirement income in excess of $31,110 (previously $41,110); or
- premiums paid for an individual’s, spouse’s, or dependent’s health insurance coverage.
Individuals who itemize Kentucky deductions may not subtract federal itemized deductions for:
- medical care expenses under IRC Sec. 213;
- moving expenses under IRC Sec. 217; or
- miscellaneous deductions (e.g., employment meal and travel expenses) under IRC Sec. 67.
Tax rates:
Individuals currently pay income tax at the rate of:
- 2% on taxable income up to $3,000;
- 3% on taxable income over $3,000 and up to $4,000;
- 4% on taxable income over $4,000 and up to $5,000;
- 5% on taxable income over $5,000 and up to $8,000;
- 5.8% on taxable income over $8,000 and up to $75,000; and
- 6% on taxable income over $75,000.
Withholding tax exemptions:
Kentucky no longer allows employees to claim withholding tax exemptions for tax years beginning after 2017. For a copy of H.B. 366 please click on this link:
http://www.lrc.ky.gov/record/18RS/HB366.htm
Call to Action: ADP is making system changes to comply with these changes. For payroll processed on or about May 30, 2018 and beyond, Kentucky employees may notice an increase or decrease in their state tax withholding. Employers are not required to retroactively adjust for any under/over-withholding.
For additional information, please access the following link: https://revenue.ky.gov/Business/Pages/Employer-Payroll-Withholding.aspx