A Guide to Kentucky State Taxes
As a United States citizen, it’s important to know what taxes you are responsible for paying, based on where you live. Taxes vary by state, so it’s important to understand which taxes are applicable to you and which are not.
In Kentucky, there are consequences if you do not pay your taxes, including interest charges. If you’re a Kentucky resident who pays your taxes 45 days after the original notice date, you may be charged a 25% Cost of Collection Fee. If you file your taxes late, the maximum penalty is 20% of the total tax due. What’s more, if you don’t pay your property taxes, your home and assets could be seized and eventually taken away from you.
Regardless of what you owe in taxes, it’s important to pay them on time and in full. This guide will explain the various types of taxes Kentucky residents are subject to and the best way to pay them.
Table of Contents
Kentucky Income Tax
There are tax credits available to certain residents, including:
- Family size tax credit: This credit looks at the size of your family and your modified gross income. If you make $33,249 or less, you might qualify for this tax credit.
- Pension income exclusion: For those earning a pension, this tax credit allows for the exclusion of a certain amount of your pension income (as well as other retirement benefits) that you earned on or after January 1, 1998.
- Child and dependent care credit: If you’re a taxpayer claiming a child or other type of dependent, this credit could provide you with a greater amount on your tax return.
- Education tuition tax credit: This tax credit allows undergraduate students to receive 25% of the amount of the federal American opportunity credit and the lifetime learning credit.
Kentucky Sales Tax
The state sales tax is 6%. If you make an out-of-state purchase, you might still be subject to a 6% use tax. For instance, if you place an order online or through a catalog for a purchase from a retailer outside of Kentucky, you might owe the Kentucky use tax in addition to sales tax. Use tax only applies to items purchased out of state.
Kentucky Property Tax
There are different types of property taxes in Kentucky, depending on the type of property you own.
The process for assessing real property is fairly straightforward. In Kentucky, a property valuation administrator physically inspects the property and estimates the value at fair cash value. Farmland is assessed differently based on the value of the agriculture it produces.
Property taxes are due by April 15, but Kentucky residents should receive their property tax bill during the fall. If you pay your property taxes early, you may be eligible for a discount, but if you pay them late, you might incur a penalty fee.
|Payment Date||Fees Applied|
|October 1 to November 1||2% discount|
|November 2 to December 31||Face value of bill|
|January 1 to January 31||5% penalty fee|
|February 1 to April 15||21% penalty fee|
There are many different types of taxable personal property. From aircraft to business personal property, motor vehicles, and watercraft, Kentucky residents are responsible for paying taxes on personal property. Personal property that is taxed in Kentucky includes:
- Manufacturing machinery.
- Farming equipment.
- Foreign trade zones.
- Pollution control facilities.
- Industrial revenue bonds.
- Rebuilds or capitalized repairs.
Property Tax Exemptions
As in many states, Kentucky has a unique set of tax exemptions that residents may be eligible to take advantage of. Property tax exemptions in Kentucky include:
- Government-owned property.
- Churches and other religious institutions.
- Public libraries.
- Cemeteries that don’t yield private or corporate profit.
- Charity organizations that contribute to the public good.
To apply for these property tax exemptions, residents need to complete Revenue Form 62A023.
Additionally, there is the homestead exemption. According to the Kentucky Department of Revenue, elderly or disabled residents may be eligible to receive this exemption, which “is applied against the assessed value of their home and their property tax liability is computed on the assessment remaining after deducting the exemption amount.”
Kentucky Inheritance Tax
Inheritance tax is for people who inherit property from deceased persons. In Kentucky, the closer your family relationship is to the deceased, the lower your inheritance tax will be. What you owe depends on the class of beneficiary that you fall under. For example, a Class A beneficiary, such as a surviving spouse, will have to pay less in taxes than a Class C beneficiary, such as a cousin.
There is no estate tax in the state of Kentucky, but there is a tax on inherited assets. Any property belonging to a resident of Kentucky is subject to the tax. Any personal property located in the state is also subject to the inheritance tax.
Other Taxes in Kentucky
Property, income, and inheritance taxes aren’t the only taxes Kentucky residents might owe. There are a few other taxes that Kentuckians should be aware of.
A fiduciary is an individual or group of individuals that act on behalf of an individual and their assets. There is a tax rate of 5% for fiduciaries. The fiduciary must pay this tax on estates or trusts that aren’t yet distributed. The income a fiduciary earns from intangibles such as copyrights or patents isn’t taxable in Kentucky if it’s passed on to nonresident beneficiaries.
Motor Vehicle Usage Tax
You’ll pay a 6% tax when you register a vehicle in Kentucky. If you don’t pay it, your tags will not be issued. Legally, tags can’t be issued until this tax is paid and the transfer, registration, and license fees are handled.
Filing Taxes in Kentucky
Whether you live in Kentucky currently or are planning to move there in the future, understanding how the state and federal taxes work is important. This guide will prepare you for all of the taxes you might incur while a resident of the Bluegrass State.
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This post was updated January 28, 2020. It was originally published January 23, 2020.