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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 244
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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 244
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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, the tax shall be four 6
percent (4%) of net income. 7
(d) 1. For taxable years beginning on or after January 1, 2025, but before 8
January 1, 2026, the income tax rate may be reduced according to the 9
annual process established in subparagraphs 2. to 5. of this paragraph. 10
2. The Office of State Budget Director shall review the reduction 11
conditions for the fiscal year 2022-2023 no later than September 1, 12
2023. 13
3. After reviewing the reduction conditions under subparagraph 2. of this 14
paragraph, the Office of State Budget Director shall, no later than 15
September 5, 2023, report to the Interim Joint Committee on 16
Appropriations and Revenue: 17
a. Whether the reduction conditions for the fiscal year 2022-2023 18
have been met; and 19
b. The amounts associated with each item within the reduction 20
conditions used for making that determination. 21
4. a. If the reduction conditions have been met for fiscal year 2022-22
2023, the General Assembly may take action to reduce the rate in 23
paragraph (c) of this subsection for the taxable year beginning 24
January 1, 2025. 25
b. If the reduction conditions have not been met for fiscal year 2022-26
2023 or the General Assembly does not take action to reduce the 27 UNOFFICIAL COPY 25 RS BR 244
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rate in paragraph (c) of this subsection, the department shall 1
maintain the rate in paragraph (c) of this subsection for the taxable 2
year beginning January 1, 2025. 3
5. a. The Office of State Budget Director shall implement an annual 4
process to review and report future reduction conditions at the 5
same time and in the same manner for each fiscal year subsequent 6
to the fiscal year 2022-2023 and each taxable year subsequent to 7
the taxable year beginning January 1, 2025. 8
b. The department shall not implement an income tax rate reduction 9
without an action by the General Assembly. 10
c. The annual process shall continue until the income tax rate is zero. 11
(e) For taxable years beginning on or after January 1, 2018, but before January 1, 12
2023, the tax shall be five percent (5%) of net income. 13
(f) For taxable years beginning after December 31, 2004, and before January 1, 14
2018, the tax shall be determined by applying the following rates to net 15
income: 16
1. Two percent (2%) of the amount of net income up to three thousand 17
dollars ($3,000); 18
2. Three percent (3%) of the amount of net income over three thousand 19
dollars ($3,000) and up to four thousand dollars ($4,000); 20
3. Four percent (4%) of the amount of net income over four thousand 21
dollars ($4,000) and up to five thousand dollars ($5,000); 22
4. Five percent (5%) of the amount of net income over five thousand 23
dollars ($5,000) and up to eight thousand dollars ($8,000); 24
5. Five and eight-tenths percent (5.8%) of the amount of net income over 25
eight thousand dollars ($8,000) and up to seventy-five thousand dollars 26
($75,000); and 27 UNOFFICIAL COPY 25 RS BR 244
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6. Six percent (6%) of the amount of net income over seventy-five 1
thousand dollars ($75,000). 2
(g) For taxable years beginning on or after January 1, 2026: 3
1. If net income is less than one hundred fifty thousand dollars 4
($150,000), the tax shall be determined by applying the following rates 5
to net income: 6
a. Four percent (4%) of the amount of net income up to one 7
hundred thousand dollars ($100,000); 8
b. Five percent (5%) of the amount of net income over one hundred 9
thousand dollars ($100,000) and up to one hundred twenty-five 10
thousand dollars ($125,000); and 11
c. Six percent (6%) of the amount of net income over one hundred 12
twenty-five thousand dollars ($125,000) and up to one hundred 13
fifty thousand dollars ($150,000); or 14
2. If net income is one hundred fifty thousand dollars ($150,000) or 15
more, the tax shall be six percent (6%) of net income. 16
(3) (a) The following tax credits, when applicable, shall be deducted from the result 17
obtained under subsection (2) of this section to arrive at the annual tax: 18
1. a. For taxable years beginning before January 1, 2014, twenty dollars 19
($20) for an unmarried individual; and 20
b. For taxable years beginning on or after January 1, 2014, and 21
before January 1, 2018, ten dollars ($10) for an unmarried 22
individual; 23
2. a. For taxable years beginning before January 1, 2014, twenty dollars 24
($20) for a married individual filing a separate return and an 25
additional twenty dollars ($20) for the spouse of taxpayer if a 26
separate return is made by the taxpayer and if the spouse, for the 27 UNOFFICIAL COPY 25 RS BR 244
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calendar year in which the taxable year of the taxpayer begins, had 1
no Kentucky gross income and is not the dependent of another 2
taxpayer; or forty dollars ($40) for married persons filing a joint 3
return, provided neither spouse is the dependent of another 4
taxpayer. The determination of marital status for the purpose of 5
this section shall be made in the manner prescribed in Section 153 6
of the Internal Revenue Code; and 7
b. For taxable years beginning on or after January 1, 2014, and 8
before January 1, 2018, ten dollars ($10) for a married individual 9
filing a separate return and an additional ten dollars ($10) for the 10
spouse of a taxpayer if a separate return is made by the taxpayer 11
and if the spouse, for the calendar year in which the taxable year of 12
the taxpayer begins, had no Kentucky gross income and is not the 13
dependent of another taxpayer; or twenty dollars ($20) for married 14
persons filing a joint return, provided neither spouse is the 15
dependent of another taxpayer. The determination of marital status 16
for the purpose of this section shall be made in the manner 17
prescribed in Section 153 of the Internal Revenue Code; 18
3. a. For taxable years beginning before January 1, 2014, twenty dollars 19
($20) credit for each dependent. No credit shall be allowed for any 20
dependent who has made a joint return with his or her spouse; and 21
b. For taxable years beginning on or after January 1, 2014, and 22
before January 1, 2018, ten dollars ($10) credit for each 23
dependent. No credit shall be allowed for any dependent who has 24
made a joint return with his or her spouse; 25
4. An additional forty dollars ($40) credit if the taxpayer has attained the 26
age of sixty-five (65) before the close of the taxable year; 27 UNOFFICIAL COPY 25 RS BR 244
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5. An additional forty dollars ($40) credit for taxpayer's spouse if a 1
separate return is made by the taxpayer and if the taxpayer's spouse has 2
attained the age of sixty-five (65) before the close of the taxable year, 3
and, for the calendar year in which the taxable year of the taxpayer 4
begins, has no Kentucky gross income and is not the dependent of 5
another taxpayer; 6
6. An additional forty dollars ($40) credit if the taxpayer is blind at the 7
close of the taxable year; 8
7. An additional forty dollars ($40) credit for taxpayer's spouse if a 9
separate return is made by the taxpayer and if the taxpayer's spouse is 10
blind, and, for the calendar year in which the taxable year of the 11
taxpayer begins, has no Kentucky gross income and is not the dependent 12
of another taxpayer; and 13
8. An additional twenty dollars ($20) credit shall be allowed if the taxpayer 14
is a member of the Kentucky National Guard at the close of the taxable 15
year. 16
(b) In the case of nonresidents, the tax credits allowable under this subsection 17
shall be the portion of the credits that are represented by the ratio of the 18
taxpayer's Kentucky adjusted gross income as determined by KRS 141.019 to 19
the taxpayer's adjusted gross income as defined in Section 62 of the Internal 20
Revenue Code. However, in the case of a married nonresident taxpayer with 21
income from Kentucky sources, whose spouse has no income from Kentucky 22
sources, the taxpayer shall determine allowable tax credit(s) by either: 23
1. The method contained above applied to the taxpayer's tax credit(s), 24
excluding credits for a spouse and dependents; or 25
2. Prorating the taxpayer's tax credit(s) plus the tax credits for the 26
taxpayer's spouse and dependents by the ratio of the taxpayer's 27 UNOFFICIAL COPY 25 RS BR 244
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Kentucky adjusted gross income as determined by KRS 141.019 to the 1
total joint federal adjusted gross income of the taxpayer and the 2
taxpayer's spouse. 3
(c) In the case of a part-year resident, the tax credits allowable under this 4
subsection shall be the portion of the credits represented by the ratio of the 5
taxpayer's Kentucky adjusted gross income as determined by KRS 141.019 to 6
the taxpayer's adjusted gross income as defined in Section 62 of the Internal 7
Revenue Code. 8
(4) An annual tax shall be paid for each taxable year as specified in this section upon 9
the entire net income except as herein provided, from all tangible property located 10
in this state, from all intangible property that has acquired a business situs in this 11
state, and from business, trade, profession, occupation, or other activities carried on 12
in this state, by natural persons not residents of this state. A nonresident individual 13
shall be taxable only upon the amount of income received by the individual from 14
labor performed, business done, or from other activities in this state, from tangible 15
property located in this state, and from intangible property which has acquired a 16
business situs in this state; provided, however, that the situs of intangible personal 17
property shall be at the residence of the real or beneficial owner and not at the 18
residence of a trustee having custody or possession thereof. For taxable years 19
beginning on or after January 1, 2021, but before January 1, 2027, the tax imposed 20
by this section shall not apply to a disaster response employee or to a disaster 21
response business. The remainder of the income received by such nonresident shall 22
be deemed nontaxable by this state. 23
(5) Subject to the provisions of KRS 141.081, any individual may elect to pay the 24
annual tax imposed by KRS 141.023 in lieu of the tax levied under this section. 25
(6) A part-year resident is subject to taxation, as prescribed in subsection (1) of this 26
section, during that portion of the taxable year that the individual is a resident and, 27 UNOFFICIAL COPY 25 RS BR 244
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as prescribed in subsection (4) of this section, during that portion of the taxable year 1
when the individual is a nonresident. 2