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Multistate Tax Alert

Kentucky H.B. 360, pass-through entity tax updates


Kentucky enacted a pass-through entity tax joining about 30 other states. The legislation, H.B. 360, enacts a tax at the entity level or “PTET” tax.  Kentucky allows the restaurant revitalization grant income exclusion and related expenses to be deducted retroactively. Kentucky lowered the income tax rates for 2023 and 2024 forward. 

The PTET Election

The legislation creates a new pass-through entity tax (“PTET”) under new KRS Chapter 141 retroactive back to tax years beginning on or after January 1, 2022.  The tax is elective and subject to Kentucky’s income tax rates enacted under HB 360 Section 21 covered later under “Reduction in Tax Rates” section of this Multistate Tax Alert.[1] The election must be made by the fifteenth day of the fourth month after the close of the tax year or the fifteenth day of the tenth month if the return is extended.  The election can be made if the partners, members, or shareholders holding 50% or more ownership in the pass-through entity (“PTE”) consent to the election. The election is binding on all the owners of the PTE.[2]

The owners of the PTE will be allowed to take a credit on their Kentucky income tax return for years beginning on or after January 1, 2022. The credit is nonrefundable and is based on the owner’s pro rata share of their PTE income.[3]  The PTE tax credit is permitted to be taken against the tax imposed by KRS 141.020.

Please select this link to read the complete article from Clark Schaefer Hackett.

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