TAX-AIDE
TAX-AIDE

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Standard Deduction $2,400
Personal tax credits reduced to $10
No more Hope Credit!
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KY will now use American Opportunity Credit
Still using Lifetime Learning Credit
Other rules remain the same
Mortgage Debt Relief is no longer an add-back – well, maybe legislation pending
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● 4 Filing Statuses on KY return
 S, MFJ, MFS
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“MFS on this COMBINED Return”
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No HOH, QW
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Schedule M for modifications
Schedule A has a few differences
Schedule P for pension exclusion
Family Size Tax Credit in place of EIC

● Exempt income in KY
 Interest for federal obligations
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Retirement income (all or part)
Social Security
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Election workers’ income
● 100% adjustment to income in KY
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LTC insurance premiums
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Health insurance premiums
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● State income tax not deductible in KY
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Local/occupational taxes are deductible
● Qualified mortgage insurance premiums
ARE deductible
● Dependents can claim self on KY return
● Credits in KY
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Child & dependent care, 20% of federal
Education, 25% of federal
No EIC
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Chart A & Chart B used
Special rules for self-employment income
 MUST FILE if gross receipts more than MGI in Chart A
Who is a resident?
 Lived in KY > 183 days
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Mary, age 17, is claimed on her parents’ return.
Her W-2 shows $2,000 in wages and state tax of $100 withheld. She has no other income.
Must or should Mary file KY return?
SHOULD FILE
Chart A, Family Size 1, MGI not >$11,670
Mary should file to get $100 back
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Pete, 50, and his wife Sarah, 49 both work. They have three children. They earned $50,000 and had $3,000 state withholding. Must or should
Pete and Sarah file?
MUST FILE
Chart A, Family size 5, MGI >$23,850
Chart B, KY AGI >$3,400
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● Single
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HOH, QW from federal will file as Single
● Married filing separately on this combined return
● Married filing joint
● Married filing separately
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Injured Spouse from federal
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● Usually lower tax liability than MFJ
● Both take the Standard Deduction
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If MFJ, only one standard deduction allowed
● TaxWise allocates income and adjustments
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 $10 (1 credit) per TP, spouse & dependent(s)
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Couple can choose how to split dependents
 65 or older
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Additional $40 per TP &/or spouse
 Legally blind
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Additional $40 per TP &/or spouse
 Member of National Guard
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Additional $20 per TP &/or spouse
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● Include income not taxed by the federal government
● Exclude income taxed by the federal government but not taxed by Kentucky
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Other states’ tax-exempt bonds
Dividends received from regulated investment companies (mutual funds) that are taxable for KY income tax purposes
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● State Tax Refund reported on federal return
● Interest from US Government bonds
● Excludable retirement income
 may have Schedule P
● Taxable Social Security & RR equivalent
● Long Term Care Premiums
● Health Insurance Premiums
● Income of active duty military, reserves &
National Guard
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● Excludes retirement income from taxation if >$41,110 AND taxpayer is retired from federal, KY state, KY local government or receives railroad retirement board (RRB) benefits.
● Amount earned before 1/1/1998 is exempt
● 100% of RRB benefits are exempt
● Up to $41,110 of what is left can be excluded
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Did taxpayer retire from federal, KY or local government or receive
Supplemental (Tier 2) Railroad
Retirement Benefits?
● If yes, Schedule P is needed when total retirement income is over $41,110.
Did taxpayer retire before 1/1/1998?
● All retirement income earned prior to 1/1/1998 is exempt and not taxed by KY.
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Phil retired from the U.S. Army in 1996.
He received a military pension of $60,000 last year. How much can be excluded?
ALL $60,000
Taxpayer retired prior to 1/1/1998 from the military
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Joe worked for 30 years in the KY legislature, from January 1, 1978 to December 31,
2007. He received $90,000 in pension income last year. He has no other retirement income. How much of his pension can be excluded?
ALL $90,000
$60,000 earned prior to 1/1/1998 is exempt & not part of $41,110
$30,000 earned after 1/1/1998 is excluded
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Sue worked for 25 years at Ford Motor
Company, from January 1, 1977 to
December 31, 1992. She received $81,110 in pension income last year. She has no other retirement income. How much of her pension can be excluded?
$41,110
No Schedule P is required for Sue because she is not retired from federal, state or local retirement systems or the railroad.
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Sarah retired from the railroad in 2011 after
40 years of service and received a Form RRB-
1099-R with Tier 2 benefits of $126,382.
Without using a calculator (because you don’t need one), how much of her benefit is excluded?
ALL OF IT
All railroad retirement is excluded, no matter when taxpayer retired. Check Box 2 on the
1099-R but use 100% as the exempt percentage.
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● Taxpayer can itemize on KY even if he/she did not itemize on federal
● KY Standard Deduction is $2,400 for all filing statuses
● Taxpayer cannot deduct state taxes, but can deduct Local /Occupational taxes
● LTC & health insurance premiums do
NOT go on Schedule A
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● Incomes up to 133% of poverty level qualify for some credit
● Maximum family size is 4
● Taxpayer, spouse in home and qualifying children are included
 Children claimed by noncustodial parent can be included for this credit
 Grandchildren may not carry automatically in
TaxWise but generally meet definition of qualifying child
● Nonrefundable credit
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● Form 8863-K
● Must be undergraduate attending an institution with a physical presence in KY
● American Opportunity or Lifetime
Learning Credit
● Nonrefundable credit
● 25% of federal amount
● Can be carried forward 5 years
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Sarah is a senior at Centre College. Her parents were able to claim the $2,500 American
Opportunity Credit on their federal return for her tuition ($12,000) and books she purchased on the internet ($650). What education credit may her parents be eligible for in Kentucky?
Eligible for both credits
American Opportunity Credit is better
$2,500*(.25) = $650
Lifetime Learning Credit
$2,000*(.25) = $500
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Bonnie is single, age 25. She took courses at
Empire Beauty School in Louisville to become a licensed cosmetologist. She has a 1098-T showing tuition paid of $2,500. She has not previously attended any postsecondary programs. She paid for her tuition with a student loan. Can she take an education credit in Kentucky? If so, which one should she take?
Yes, she should take the AOC
AOC would be $2,000 + ($500)*(.25)= $2,125 on federal return
AOC would be ($2,125)*(.25) = $531 on KY return
LLC would be only ($2,500)*(.20)*(.25) = $125
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● Out-of-state purchases used in KY are taxed at
KY tax rate (6%)
● If less than 6% tax paid, TP pays difference
● Has been in the tax code since 1960
● More of an issue today because of online sales
● If taxpayer does not pay at least 6% sales tax he or she should:
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Pay tax annually on Form 740 OR
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File Form 51A113 at the time of purchase
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Can use optional tax table for purchases <$1,000
See 740 instructions for more information
Remember due diligence
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Susan did not keep track of her out-ofstate purchases, but she thinks they were about $500. Assume all her purchases are subject to use tax. Her federal AGI is
$92,000 and her KY AGI is $52,000. What should she claim on her Kentucky tax return?
Use tax of $50 using Optional Use Tax
Table
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Jim, a KY resident, went on a shopping spree last year in Virginia. He has receipts for
$1,000 spent on clothing that he brought back to Kentucky. The sales tax rate in
Virginia is 4%. He has not reported any sales to Kentucky. What are the use tax consequences for his Kentucky return?
He should claim $20 in use tax on KY return
$1,000*(.06-.04) = $20
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● Form 5695-K
● Different rules than federal credit
● Windows credit includes installation
● Must be primary residence of taxpayer
● Credit is 30% of expenses
● Up to $500 each year, 2009-2015
 Maximum of $100 insulation, $250 windows & doors, $250 qualified energy property
● Credit can be carried forward ONE year
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● Agreements allow taxpayers in these states to be taxed by their state of residence, not where income is earned
● Prevents filing of nonresident tax returns
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● May not claim credit for taxes paid to a reciprocal state
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Employers should set up withholding for
KY if taxpayer works in a reciprocal state
● Mostly covers wages and salaries
● See 740 instructions for more information
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● Choose Best Filing Status
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Always compare MFJ and “Married Filing
Separately on This Combined Return”
● May want to itemize in KY even if taxpayer took standard deduction on federal
● Direct deposit available for refunds only if electronically filed
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● Questions?
● Comments?
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● Attended class, including training on Standards of
Conduct, policies & administration?
● Required workbook problems, completed and reviewed?
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Beringer, Webster, Austin, Fleming
● Standards of Conduct test, minimum 80% score?
● Advanced test, minimum 80% score?
● Optional HSA test, minimum 80% score?
● KY test, minimum 80% score?
● Turned in the “TWO Training Evaluation”?
TAX-AIDE