Tax reform and your Kentucky state tax return

Two horses graze in a green pasture surrounded by white fence, trees and blue sky in Kentucky, where the Kentucky state income tax is a flat rate. Image:

In a Nutshell

Kentucky is probably best known for horse racing and bourbon, but the Bluegrass State has other claims to fame. It’s one of just four U.S. commonwealths and one of the few states with a flat rate for its state income tax after recent reforms.

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This article was fact-checked by our editors and reviewed by CPA candidate Janet Murphy, senior product specialist with Credit Karma Tax®.

Kentucky may be the perfect state for you if you love horse racing, bluegrass music, hunting or fishing, and bourbon.

And you may also love the idea of the flat individual and corporate income tax rate that the Kentucky Legislature adopted for 2018 and future tax years. A flat tax rate can make it easy to calculate how much tax you owe. But if you’re a low-income taxpayer, that flat rate may mean you’re required to pay more of your needed funds to the state, whereas higher earners may be able to more easily afford to pay the same percentage of their income.

The flat tax rate is just one of the rules you need to know if you must pay Kentucky state tax. Let’s look at the rules and some information that can help you file your tax return in the commonwealth of Kentucky.


The basics of Kentucky state tax

If you live in Kentucky and earn income, or live outside the state and earn income from Kentucky sources, you’ll need to pay Kentucky state income tax.

Kentucky used to tax income at different tax rates depending upon how much you earned, with tax rates rising from 2% to 6%. However, thanks to changes in the Kentucky tax code, individuals and corporations are now all taxed at 5% on taxable income.

Kentucky’s new tax code went into effect January 2018, and the change to a flat tax was not the only modification that was made. The rules for certain itemized deductions changed as well, eliminating many individual income tax deductions. So filing your taxes in Kentucky this year may be different than in the past.

Learn how federal tax reform could affect your 2018 tax bill

Taxing body

The Kentucky Department of Revenue is the taxing body in Kentucky responsible for enforcing tax laws and processing tax returns. The main office for the Department of Revenue is at 501 High Street in Frankfort, KY 40601. You can call the main office at 1-502-564-4581.

Taxpayers throughout Kentucky can also find a Service Center for the Department of Revenue at 10 locations statewide, including in Frankfort, Louisville, Florence, Owensboro, Corbin, Paducah, Ashland, Pikeville, Bowling Green and Hopkinsville.

Filing and payment deadline

The deadline for submitting your income tax forms in Kentucky is the same as the federal deadline. This means you’ll need to file your tax forms and pay taxes due by April 15. If the 15th falls on a weekend or a holiday, your return will be due the next business day.

Filing statuses

Kentucky recognizes four filing statuses.

Single: Unmarried, divorced, widowed, legally separated taxpayers and those who filed as head of household or qualifying widow(er) on their federal returns.
Married filing separately on a combined return: Married taxpayers reporting separate incomes and claiming separate deductions, but filing only one tax return.
Married filing separate returns: Married taxpayers filing two completely separate returns.
Married filing a joint return: Married taxpayers reporting a combined income and filing together on one tax return.

When married couples file jointly or a combined return, they are both individually responsible for all income taxes that are due for the time period covered by the return — so both are responsible even if only one spouse owes taxes.

Kentucky state income tax rates

Beginning Jan. 1, 2018, all previous tax rate brackets are no longer in effect in Kentucky. The commonwealth now charges a 5% flat tax rate on taxable income for individuals and corporations. Kentucky’s tax reform bill also eliminated the personal tax credit available to taxpayers and dependents.


What are the 2018 federal income tax rates?

The Tax Cuts and Jobs Act of 2017 set individual income tax rates at 10%, 12%, 22%, 24%, 32%, 35% and 37%.

Of course, calculating your federal income tax bill isn’t as simple as multiplying your taxable income by your marginal tax rate. Learn more about calculating your federal income tax.

Kentucky deductions and credits to know

Standard deduction

Kentucky’s tax reform bill kept the commonwealth’s standard deduction, which for 2018 is $2,530. Married couples filing separately on a combined return can each claim a standard deduction, while joint filers can claim only one.

Itemizing deductions

If you don’t take a standard deduction, you may choose to itemize your deductions on your Kentucky state tax return. However, Kentucky eliminated a number of itemized deductions in the commonwealth for 2018.

Deductions that taxpayers may still claim in Kentucky include the following:

  • Charitable contributions
  • Home mortgage interest
  • Mortgage discount points
  • Qualifying mortgage insurance premiums
  • A limited number of miscellaneous deductions, including amortizable premiums on taxable bonds, and unrecovered investments in an annuity

Many deductions you were previously able to claim, including premiums paid for health insurance or long-term care insurance, are no longer deductible in Kentucky.

Kentucky tax credits

The commonwealth’s tax reform bill provides for these individual tax credits:

  • A credit of $40 for taxpayers 65 or older before the end of the tax year.
  • A $40 credit for taxpayers who are blind at the end of the tax year.
  • A credit of $20 if a taxpayer is a member of the Kentucky National Guard at the end of the tax year.
  • A child and dependent care credit, worth 20% of the federal credit, for related expenses “necessary for gainful employment,” if you qualify for it.
  • A credit for qualified tuition and related expenses to enroll or attend an undergraduate school — if you, your spouse or a dependent pursues an undergraduate degree at an eligible education institution in Kentucky (worth 25% of your federal Lifetime Learning Credit).

How to file your Kentucky state tax return

Nearly 90% of Kentucky residents e-file their income tax returns, which the state of Kentucky recommends.

The Kentucky Department of Revenue lists online filing services and software providers that can help you e-file for free, including Credit Karma Tax®. While Credit Karma Tax® never charges you to file your single-state and federal tax returns, be aware that other vendors may charge fees based on your federal adjusted gross income, age and other factors.

Kentucky residents can also obtain their tax forms online and can submit their return via mail to the following address if they owe taxes:

Kentucky Department of Revenue
P.O. Box 856980
Louisville, KY 40285-6980

If you’re owed a refund (or filing other returns):

Kentucky Department of Revenue
P.O. Box 856970
Louisville, KY 40285-6970

If you owe and can’t pay

Taxpayers are expected to pay their taxes by the filing deadline. Those who are unable to pay their taxes on time should pay what they can and contact the Department of Revenue to discuss options for a payment plan.

Those whose tax debt is being handled by the Division of Collection can also set up a payment plan by going online to CACS for Government. The maximum payment term is 24 months and the minimum monthly payment is $50.

If your desired payments exceed these limits or if you want to pay by credit card, you’ll need to contact the Department of Revenue at 1-502-564-4921, extension 5357.

Track your Kentucky state tax refund

Taxpayers who e-file returns can expect to receive their refunds within two to three weeks if they also choose direct deposit. Those who submit paper returns will receive their refund within eight to 12 weeks. It’s possible to check the status of a refund online on the Refund Status page of the Kentucky Department of Revenue’s website. You will need to know your Social Security number and refund amount to check the status of your refund.

Bottom line

Residents of the Bluegrass State may feel the need to visit one of Kentucky’s famous bourbon distilleries after trying to navigate all the changes ushered in by changes to the commonwealth’s tax code. While a flat 5% tax rate for everyone may make it easier to calculate your Kentucky state income tax burden, if you’re a lower earner, you might have had a lower marginal tax rate under the old tax system. In fact, the Kentucky Center for Economic Policy says the commonwealth’s tax reform law means the bottom 95% of Kentuckians will pay more in total taxes, and the richest 5% will pay less.

A senior product specialist with Credit Karma Tax®, Janet Murphy is a CPA candidate with more than a decade in the tax industry. She’s worked as a tax analyst, tax product development manager and tax accountant. She has accounting degrees and certifications from Clemson University and the U.S. Career Institute. You can find her on LinkedIn.