KRS § 141.020 — KY Code / Title XI / Chapter 141 / Section 141.020
141.020 Levy of income tax on individuals -- Rate of normal tax -- Reduction -- Tax credits -- Income of nonresidents subject to tax -- Election to pay tax imposed by KRS 141.023
Status: in_force

141.020 Levy of income tax on individuals -- Rate of normal tax -- Reduction -- Tax

credits -- Income of nonresidents subject to tax -- Election to pay tax imposed

by KRS 141.023.

(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;

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; and

d. Any appropriation from the budget reserve trust fund account

established in KRS 48.705 that is:

i. Solely supported by moneys from the budget reserve trust

fund account; and

ii. Specifically identified in the appropriation language as not

being a GF appropriation for the purposes of this section;

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); and

5. For analysis through fiscal year 2024-2025 and for reporting through

September 5, 2025:

a. "Reduction conditions" means:

i. 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

ii. 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

b. "Tax rate reduction" means the current tax rate minus five-tenths

of one percent (0.5%).

(b) 1. For the analysis for fiscal year 2025-2026 and fiscal year 2026-2027,

and for reporting on or before September 5, 2026, and September 5,

2027, "tax rate reduction conditions" means the greatest reduction

achieved under subparagraphs 2. and 3. of this paragraph.

2. If:

a. The balance in the BRTF at the end of a fiscal year is 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 are equal to or greater than

GF appropriations for that fiscal year plus an amount that falls

within a range of greater than fifty percent (50%) but less than one

hundred percent (100%) of the IIT equivalent for that fiscal year;

then the tax rate reduction may be the current tax rate minus twenty-five

one-hundredths of one percent (0.25%).

3. If:

a. The balance in the BRTF at the end of a fiscal year is 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 are equal to or greater than

GF appropriations for that fiscal year plus the IIT equivalent for

that fiscal year;

then the tax rate reduction may be the current tax rate minus five-tenths

of one percent (0.5%).

(c) 1. For the analysis for fiscal year 2027-2028 and each fiscal year thereafter

and for reporting on or before September 5, 2028, and each September 5

thereafter, "tax rate reduction conditions" means the greatest reduction

achieved under subparagraphs 2. to 6. of this paragraph.

2. If:

a. The balance in the BRTF at the end of a fiscal year is 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 are equal to or greater than

GF appropriations for that fiscal year plus an amount that falls

within a range of equal to or greater than twenty percent (20%) but

not greater than thirty-nine percent (39%) of the IIT equivalent for

that fiscal year;

then the tax rate reduction may be the current tax rate minus one-tenth

of one percent (0.1%).

3. If:

a. The balance in the BRTF at the end of a fiscal year is 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 are equal to or greater than

GF appropriations for that fiscal year plus an amount that falls

within a range of equal to or greater than forty percent (40%) but

not greater than fifty-nine percent (59%) of the IIT equivalent for

that fiscal year;

then the tax rate reduction may be the current tax rate minus two-tenths

of one percent (0.2%).

4. If:

a. The balance in the BRTF at the end of a fiscal year is 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 are equal to or greater than

GF appropriations for that fiscal year plus an amount that falls

within a range of equal to or greater than sixty percent (60%) but

not greater than seventy-nine percent (79%) of the IIT equivalent

for that fiscal year;

then the tax rate reduction may be the current tax rate minus three-tenths

of one percent (0.3%).

5. If:

a. The balance in the BRTF at the end of a fiscal year is 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 are equal to or greater than

GF appropriations for that fiscal year plus an amount that falls

within a range of equal to or greater than eighty percent (80%) but

not greater than ninety-nine percent (99%) of the IIT equivalent

for that fiscal year;

then the tax rate reduction may be the current tax rate minus four-tenths

of one percent (0.4%).

6. If:

a. The balance in the BRTF at the end of a fiscal year is 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 are equal to or greater than

GF appropriations for that fiscal year plus the IIT equivalent for

that fiscal year;

then the tax rate reduction may be the current tax rate minus five-tenths

of one percent (0.5%).

(d) 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.

(e) For taxable years beginning on or after January 1, 2024, but before January 1,

2026, the tax shall be four percent (4%) of net income.

(f) For taxable years beginning on or after January 1, 2026, the tax shall be three

and one-half percent (3.5%) of net income.

(g) 1. For taxable years beginning on or after January 1, 2027, the income tax

rate may be reduced according to the annual process established in:

a. Subparagraph 2. or 3. of this paragraph; and

b. Subparagraph 4. of this paragraph.

2. a. The Office of State Budget Director shall review the reduction

conditions for the fiscal year 2024-2025 no later than September 1,

2025.

b. After reviewing the reduction conditions under subdivision a. of

this subparagraph, the Office of State Budget Director shall, no

later than September 5, 2025, report to the Interim Joint

Committee on Appropriations and Revenue:

i. Whether the reduction conditions for the fiscal year 2024-

2025 have been met; and

ii. The amounts associated with each item within the reduction

conditions used for making that determination.

c. i. If the reduction conditions have been met for fiscal year

2024-2025, the General Assembly may take action to reduce

the rate in paragraph (f) of this subsection for the taxable

year beginning January 1, 2027.

ii. If the reduction conditions have not been met for fiscal year

2024-2025 or the General Assembly does not take action to

reduce the rate in paragraph (f) of this subsection, the

department shall maintain the rate in paragraph (f) of this

subsection for the taxable year beginning January 1, 2027.

3. a. The Office of State Budget Director shall review the tax rate

reduction conditions for the fiscal year 2025-2026 no later than

September 1, 2026.

b. After reviewing the tax rate reduction conditions under

subdivision a. of this subparagraph, the Office of State Budget

Director shall, no later than September 5, 2026, report to the

Interim Joint Committee on Appropriations and Revenue:

i. Whether the tax rate reduction conditions for the fiscal year

2025-2026 have been met; and

ii. The amounts associated with each item within the tax rate

reduction conditions used for making that determination.

c. i. If the tax rate reduction conditions have been met for fiscal

year 2025-2026, the General Assembly may take action to

reduce the rate in paragraph (f) of this subsection for the

taxable year beginning January 1, 2028.

ii. If the tax rate reduction conditions have not been met for

fiscal year 2025-2026 or the General Assembly does not take

action to reduce the rate in paragraph (f) of this subsection,

the department shall maintain the rate in paragraph (f) of this

subsection for the taxable year beginning January 1, 2028.

4. a. The Office of State Budget Director shall implement an annual

process to review and report future reduction conditions or tax rate

reduction conditions at the same time and in the same manner for

each fiscal year subsequent to the fiscal year 2024-2025 and each

taxable year subsequent to the taxable year beginning January 1,

2027.

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.

(h) 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.

(i) 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, 2027, 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 the 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.