Kentucky residents are required to report all of their income regardless of where it was earned. If income is earned in another state and both Kentucky and the other state tax the income, you may be able to claim a credit for taxes paid to the other state as a credit on your Kentucky return. The credit is limited to the lesser of the amount paid to the other state or the Kentucky tax calculated if the income earned in the other state is removed from the return.
A tax return for both states is required to claim the credit. Kentucky requires you to provide a copy of the other state's return to verify the credit.
The credit for taxes paid to another state is automatically calculated in your account when you add a Nonresident return to your already created Resident Kentucky return if you pay taxes to both Kentucky and another state. If you earned income in more than one other state, complete the credit for each state in which the earnings were taxed and also taxed in Kentucky. This will need to be completed manually. Part-Year residents will also need to make the entries manually.
If you are required to enter the credit manually, you can claim this credit by following the steps below:
- State Section
- Credit for Taxes Paid to Another State
What if I live in a reciprocal State?
Kentucky has reciprocal agreements with Illinois, West Virginia, Indiana, Michigan, Wisconsin, Ohio and Virginia. Reciprocal agreements are agreements between two states providing that only the resident state will tax the income earned in the nonresident state. The types of income the agreement applies to varies from state to state with the exception of wages and salaries. Wages and salaries are covered under each of the Kentucky reciprocal agreements. Please see the Kentucky instructions for the complete list of other income covered by the reciprocal agreement.
If you are a resident of Kentucky and worked in a state with a reciprocal agreement, you are not permitted to take the credit for taxes paid to the other state. You must follow the directions for completing a reciprocal agreement as outlined in our Knowledgebase Article.