Kentucky has made the following changes to the tax laws for the 2020 tax year:
Which deductions changed?
- The Standard Deduction for 2021 is $2,690.
- Charitable contributions - Kentucky does not conform to the $300 "above the line" charitable contribution adjustment. This adjustment is allowed on the Federal tax return as a result of the CARES Act. If you claim this adjustment on your Federal tax return, it must be added back to your Kentucky State return.
PPP (Paycheck Protection Program) Loans and EIDL (Economic Injury Disaster Loans) Grants and Advances - Expenses that were paid with forgiven PPP loans or EIDL grants/advances are eligible to be deducted for KY state income tax purposes, in addition to federal tax purposes. Visit this support link, to learn more: https://support.taxslayer.com/hc/en-us/articles/360060287591-Paycheck-Protection-Program-PPP-Loan-
What changes were made to state tax credits?
- Family Size Tax Credit - The 2021 threshold amount is $12,880 for a family of one, $17,420 for a size of two, $21,960 for a size of three, and $26,500 for a family size of four or more people.
- Inventory Tax Credit - This credit maximum increased to 100% of the ad valorem taxes paid (within a timely manner), for property described in KRS 132.020(1)(e) or KRS 132.099, for the taxable years starting January 1, 2021.
- Renewable Chemical Production Tax Credit - This is a nonrefundable and nontransferable credit, allowed against the taxes imposed by KRS 141.020 or KRS 141.040 and KRS 141.0401, that applies to taxable years beginning on or after January 1, 2021, through December 31, 2024, for the production of renewable chemicals. The maximum credit amount allowed is $10,000,000, annually.
- Form 2441-K is new for Child and Dependent Care Credit - Kentucky does not conform to the federal American Rescue Plan (ARP) of 2021, which enhanced the federal child dependent care credit. This form was created to calculate the allowable Kentucky child and dependent care credit for individuals.
- Income Gap Tax Credit - This credit has expired and was only available in tax years 2019 and 2020. (For tax years 2019 and 2020, you could claim this credit if you were eligible for the Family Size Tax Credit and had a family size of three people or less. This credit was designed to assist taxpayers whose rates increased due to the new flat 5% tax rate.)