Kentucky legislature enacts tax law, overriding Governor’s veto

The Kentucky Legislature voted to override Gov. Matt Bevin’s veto of legislation that made extensive changes to Kentucky corporate and personal income tax provisions.
The legislation 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 Code 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 Code Sec. 213;
  • moving expenses under Code Sec. 217; or
  • miscellaneous deductions (e.g., employment meal and travel expenses) under Code 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. (H.B. 366, Laws 2018, effective April 13, 2018 and as noted.)

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