KRS 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 residen t 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 expendit ure 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 r eceipts 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 th e 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 fisc al 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 mon eys 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 fisc al 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 appropriatio ns 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 gre ater 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 equival ent
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 tha t 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 Direc tor 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 reduc tion
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 conditi ons 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 ma y 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 Janua ry 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 n ot 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 m anner 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 doll ars ($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 a fter 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) be fore 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 po rtion 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 e ach 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 r esponse 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.