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AN ACT relating to the individual income tax rate. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
ď˘Section 1. KRS 141.020 is amended to read as follows: 3
(1) An annual tax shall be paid for each taxable year by every resident individual of 4
this state upon his or her entire net income as defined in this chapter. The tax shall 5
be determined by applying the rates in subsection (2) of this section to net income 6
and subtracting allowable tax credits provided in subsection (3) of this section. 7
(2) (a) As used in this subsection: 8
1. "Balance in the BRTF at the end of a fiscal year" means the budget 9
reserve trust fund account established in KRS 48.705 and includes the 10
following amounts and actions resulting from the final close of the fiscal 11
year: 12
a. The amount of moneys in the fund at the end of a fiscal year; 13
b. All close-out actions related to a budget reduction plan under KRS 14
48.130 or as modified in a branch budget bill; and 15
c. All close-out actions related to the surplus expenditure plan under 16
KRS 48.140 or as modified in a branch budget bill; 17
2. "GF appropriations" means the authorization by the General Assembly 18
to expend GF moneys, excluding: 19
a. Continuing appropriations; 20
b. Any appropriation to the budget reserve trust fund; 21
c. Any lump-sum appropriation to a state-administered retirement 22
system, as defined in KRS 7A.210, that is in excess of the 23
appropriations specifically budgeted to meet the recurring 24
statutorily required contributions or recurring actuarially 25
determined contributions for a state-administered retirement 26
system under KRS 21.525, 61.565, 61.702, 78.635, 78.5536, or 27 UNOFFICIAL COPY 25 RS BR 195
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161.550, as applicable; and 1
d. Any appropriation from the budget reserve trust fund account 2
established in KRS 48.705 that is: 3
i. Solely supported by moneys from the budget reserve trust 4
fund account; and 5
ii. Specifically identified in the appropriation language as not 6
being a GF appropriation for the purposes of this section; 7
3. "GF moneys" means receipts deposited in the general fund defined in 8
KRS 48.010, excluding tobacco moneys deposited in the fund 9
established in KRS 248.654; 10
4. "IIT equivalent" means the amount of reduction in GF moneys resulting 11
from a one (1) percentage point reduction to the individual income tax 12
rate and shall be calculated by dividing the actual individual income tax 13
receipts for the fiscal year under consideration by: 14
a. The sum of: 15
i. The individual income tax rate, expressed as a percentage, 16
for the first six (6) months of the fiscal year; and 17
ii. The individual income tax rate, expressed as a percentage, 18
for the second six (6) months of the fiscal year; and 19
b. Dividing the sum determined in subdivision a. of this 20
subparagraph by two (2); 21
5. "Reduction conditions" means: 22
a. The balance in the BRTF at the end of a fiscal year shall be equal 23
to or greater than ten percent (10%) of the GF moneys for that 24
fiscal year; and 25
b. GF moneys at the end of a fiscal year shall be equal to or greater 26
than GF appropriations for that fiscal year plus the IIT equivalent 27 UNOFFICIAL COPY 25 RS BR 195
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for that fiscal year; and 1
6. "Tax rate reduction" means the current tax rate minus five-tenths of one 2
percent (0.5%). 3
(b) For taxable years beginning on or after January 1, 2023, but prior to January 4
1, 2024, the tax shall be four and one-half percent (4.5%) of net income. 5
(c) For taxable years beginning on or after January 1, 2024, but before January 6
1, 2026, the tax shall be four percent (4%) of net income. 7
(d) For taxable years beginning on or after January 1, 2026, the tax shall be 8
three and one-half percent (3.5%) of net income. 9
(e) 1. For taxable years beginning on or after January 1, 2027[2025], the 10
income tax rate may be reduced according to the annual process 11
established in subparagraphs 2. to 5. of this paragraph. 12
2. The Office of State Budget Director shall review the reduction 13
conditions for the fiscal year 2024-2025[2022-2023] no later than 14
September 1, 2025[2023]. 15
3. After reviewing the reduction conditions under subparagraph 2. of this 16
paragraph, the Office of State Budget Director shall, no later than 17
September 5, 2025[2023], report to the Interim Joint Committee on 18
Appropriations and Revenue: 19
a. Whether the reduction conditions for the fiscal year 2024-20
2025[2022-2023] have been met; and 21
b. The amounts associated with each item within the reduction 22
conditions used for making that determination. 23
4. a. If the reduction conditions have been met for fiscal year 2024-24
2025[2022-2023], the General Assembly may take action to 25
reduce the rate in paragraph (d)[(c)] of this subsection for the 26
taxable year beginning January 1, 2027[2025]. 27 UNOFFICIAL COPY 25 RS BR 195
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b. If the reduction conditions have not been met for fiscal year 2024-1
2025[2022-2023] or the General Assembly does not take action to 2
reduce the rate in paragraph (d)[(c)] of this subsection, the 3
department shall maintain the rate in paragraph (d)[(c)] of this 4
subsection for the taxable year beginning January 1, 2027[2025]. 5
5. a. The Office of State Budget Director shall implement an annual 6
process to review and report future reduction conditions at the 7
same time and in the same manner for each fiscal year subsequent 8
to the fiscal year 2024-2025[2022-2023] and each taxable year 9
subsequent to the taxable year beginning January 1, 2027[2025]. 10
b. The department shall not implement an income tax rate reduction 11
without an action by the General Assembly. 12
c. The annual process shall continue until the income tax rate is zero. 13
(f)[(e)] For taxable years beginning on or after January 1, 2018, but before 14
January 1, 2023, the tax shall be five percent (5%) of net income. 15
(g)[(f)] For taxable years beginning after December 31, 2004, and before 16
January 1, 2018, the tax shall be determined by applying the following rates to 17
net income: 18
1. Two percent (2%) of the amount of net income up to three thousand 19
dollars ($3,000); 20
2. Three percent (3%) of the amount of net income over three thousand 21
dollars ($3,000) and up to four thousand dollars ($4,000); 22
3. Four percent (4%) of the amount of net income over four thousand 23
dollars ($4,000) and up to five thousand dollars ($5,000); 24
4. Five percent (5%) of the amount of net income over five thousand 25
dollars ($5,000) and up to eight thousand dollars ($8,000); 26
5. Five and eight-tenths percent (5.8%) of the amount of net income over 27 UNOFFICIAL COPY 25 RS BR 195
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eight thousand dollars ($8,000) and up to seventy-five thousand dollars 1
($75,000); and 2
6. Six percent (6%) of the amount of net income over seventy-five 3
thousand dollars ($75,000). 4
(3) (a) The following tax credits, when applicable, shall be deducted from the result 5
obtained under subsection (2) of this section to arrive at the annual tax: 6
1. a. For taxable years beginning before January 1, 2014, twenty dollars 7
($20) for an unmarried individual; and 8
b. For taxable years beginning on or after January 1, 2014, and 9
before January 1, 2018, ten dollars ($10) for an unmarried 10
individual; 11
2. a. For taxable years beginning before January 1, 2014, twenty dollars 12
($20) for a married individual filing a separate return and an 13
additional twenty dollars ($20) for the spouse of taxpayer if a 14
separate return is made by the taxpayer and if the spouse, for the 15
calendar year in which the taxable year of the taxpayer begins, had 16
no Kentucky gross income and is not the dependent of another 17
taxpayer; or forty dollars ($40) for married persons filing a joint 18
return, provided neither spouse is the dependent of another 19
taxpayer. The determination of marital status for the purpose of 20
this section shall be made in the manner prescribed in Section 153 21
of the Internal Revenue Code; and 22
b. For taxable years beginning on or after January 1, 2014, and 23
before January 1, 2018, ten dollars ($10) for a married individual 24
filing a separate return and an additional ten dollars ($10) for the 25
spouse of a taxpayer if a separate return is made by the taxpayer 26
and if the spouse, for the calendar year in which the taxable year of 27 UNOFFICIAL COPY 25 RS BR 195
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the taxpayer begins, had no Kentucky gross income and is not the 1
dependent of another taxpayer; or twenty dollars ($20) for married 2
persons filing a joint return, provided neither spouse is the 3
dependent of another taxpayer. The determination of marital status 4
for the purpose of this section shall be made in the manner 5
prescribed in Section 153 of the Internal Revenue Code; 6
3. a. For taxable years beginning before January 1, 2014, twenty dollars 7
($20) credit for each dependent. No credit shall be allowed for any 8
dependent who has made a joint return with his or her spouse; and 9
b. For taxable years beginning on or after January 1, 2014, and 10
before January 1, 2018, ten dollars ($10) credit for each 11
dependent. No credit shall be allowed for any dependent who has 12
made a joint return with his or her spouse; 13
4. An additional forty dollars ($40) credit if the taxpayer has attained the 14
age of sixty-five (65) before the close of the taxable year; 15
5. An additional forty dollars ($40) credit for taxpayer's spouse if a 16
separate return is made by the taxpayer and if the taxpayer's spouse has 17
attained the age of sixty-five (65) before the close of the taxable year, 18
and, for the calendar year in which the taxable year of the taxpayer 19
begins, has no Kentucky gross income and is not the dependent of 20
another taxpayer; 21
6. An additional forty dollars ($40) credit if the taxpayer is blind at the 22
close of the taxable year; 23
7. An additional forty dollars ($40) credit for taxpayer's spouse if a 24
separate return is made by the taxpayer and if the taxpayer's spouse is 25
blind, and, for the calendar year in which the taxable year of the 26
taxpayer begins, has no Kentucky gross income and is not the dependent 27 UNOFFICIAL COPY 25 RS BR 195
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of another taxpayer; and 1
8. An additional twenty dollars ($20) credit shall be allowed if the taxpayer 2
is a member of the Kentucky National Guard at the close of the taxable 3
year. 4
(b) In the case of nonresidents, the tax credits allowable under this subsection 5
shall be the portion of the credits that are represented by the ratio of the 6
taxpayer's Kentucky adjusted gross income as determined by KRS 141.019 to 7
the taxpayer's adjusted gross income as defined in Section 62 of the Internal 8
Revenue Code. However, in the case of a married nonresident taxpayer with 9
income from Kentucky sources, whose spouse has no income from Kentucky 10
sources, the taxpayer shall determine allowable tax credit(s) by either: 11
1. The method contained above applied to the taxpayer's tax credit(s), 12
excluding credits for a spouse and dependents; or 13
2. Prorating the taxpayer's tax credit(s) plus the tax credits for the 14
taxpayer's spouse and dependents by the ratio of the taxpayer's 15
Kentucky adjusted gross income as determined by KRS 141.019 to the 16
total joint federal adjusted gross income of the taxpayer and the 17
taxpayer's spouse. 18
(c) In the case of a part-year resident, the tax credits allowable under this 19
subsection shall be the portion of the credits represented by the ratio of the 20
taxpayer's Kentucky adjusted gross income as determined by KRS 141.019 to 21
the taxpayer's adjusted gross income as defined in Section 62 of the Internal 22
Revenue Code. 23
(4) An annual tax shall be paid for each taxable year as specified in this section upon 24
the entire net income except as herein provided, from all tangible property located 25
in this state, from all intangible property that has acquired a business situs in this 26
state, and from business, trade, profession, occupation, or other activities carried on 27 UNOFFICIAL COPY 25 RS BR 195
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in this state, by natural persons not residents of this state. A nonresident individual 1
shall be taxable only upon the amount of income received by the individual from 2
labor performed, business done, or from other activities in this state, from tangible 3
property located in this state, and from intangible property which has acquired a 4
business situs in this state; provided, however, that the situs of intangible personal 5
property shall be at the residence of the real or beneficial owner and not at the 6
residence of a trustee having custody or possession thereof. For taxable years 7
beginning on or after January 1, 2021, but before January 1, 2027, the tax imposed 8
by this section shall not apply to a disaster response employee or to a disaster 9
response business. The remainder of the income received by such nonresident shall 10
be deemed nontaxable by this state. 11
(5) Subject to the provisions of KRS 141.081, any individual may elect to pay the 12
annual tax imposed by KRS 141.023 in lieu of the tax levied under this section. 13
(6) A part-year resident is subject to taxation, as prescribed in subsection (1) of this 14
section, during that portion of the taxable year that the individual is a resident and, 15
as prescribed in subsection (4) of this section, during that portion of the taxable year 16
when the individual is a nonresident. 17