Kentucky Tax Form 740 - Individual Income Tax Return (Full-Year Residents Only) Instructions

What's New

STANDARD DEDUCTION-For 2008, the standard deduction is $2,100.

FAMILY SIZE TAX CREDIT-This credit provides benefits to individuals and families at incomes up to 133 percent of the threshold amount based on the federal poverty level. The 2008 threshold amount is $10,400 for a family size of one, $14,000 for a family of two, $17,600 for a family of three and $21,200 for a family of four or more.

MORTGAGE DEBT FORGIVENESS (not an allowable exclusion from income for Kentucky tax purposes)-The Mortgage Forgiveness Debt Relief Act of 2007 was enacted to provide relief to those families who have been adversely affected by problems in the subprime mortgage market. This act provides federal income tax relief to those families by permanently excluding mortgage debt forgiven by a lender. However, because Kentucky has not adopted this legislation, any mortgage debt forgiveness will still be considered income for Kentucky purposes and subject to Kentucky tax. Therefore, a Schedule M adjustment must be made on Part 1, Additions to Federal Adjusted Gross Income, line 6 to report this income.

ETHANOL TAX CREDIT-For taxable years beginning after December 31, 2007, an ethanol producer shall be eligible for a nonrefundable tax credit against the taxes imposed by KRS 141.020 or 141.040 and 141.0401 in an amount certifi ed by the department. The credit rate shall be one dollar ($1) per ethanol gallon produced, unless the total amount of approved credit for all ethanol producers exceeds the annual ethanol tax credit cap. If the total amount of approved credit for all ethanol producers exceeds the annual ethanol tax credit cap, the department shall determine the amount of credit each ethanol producer receives by multiplying the annual ethanol tax credit cap by a fraction, the numerator of which is the amount of approved credit for the ethanol producer and the denominator of which is the total approved credit for all ethanol producers. The credit allowed shall be applied both to the income tax imposed under KRS 141.020 or 141.040 and to the limited liability entity tax imposed under KRS 141.0401, with the ordering of credits as provided in KRS 141.0205. Any remaining ethanol credit shall be disallowed and shall not be carried forward to the next year.

CELLULOSIC ETHANOL TAX CREDIT-For taxable years beginning after December 31, 2007, a cellulosic ethanol producer shall be eligible for a nonrefundable tax credit against the taxes imposed by KRS 141.020 or 141.040 and 141.0401 in an amount certifi ed by the department. The credit rate shall be one dollar ($1) per cellulosic ethanol gallon produced, unless the total amount of approved credit for all cellulosic ethanol producers exceeds the annual cellulosic ethanol tax credit cap. If the total amount of approved credit for all cellulosic ethanol producers exceeds the annual cellulosic ethanol tax credit cap, the department shall determine the amount of credit each cellulosic ethanol producer receives by multiplying the annual cellulosic ethanol tax credit cap by a fraction, the numerator of which is the amount of approved credit for the cellulosic ethanol producer and the denominator of which is the total approved credit for all cellulosic ethanol producers. The credit allowed shall be applied both to the income tax imposed under KRS 141.020 or 141.040 and to the limited liability entity tax imposed under KRS 141.0401, with the ordering of credits as provided in KRS 141.0205. Any remaining cellulosic ethanol credit shall be disallowed and shall not be carried forward to the next year.

General Information

Which form should I file?

File Form 740-EZ if you are a Kentucky resident for the entire year and:

are filing federal Form 1040EZ.
file as single.
do not claim additional credits for being age 65 or over, blind, or a member of the Kentucky National Guard at the end of 2008.
had only wages, salaries, tips, unemployment compensation, taxable scholarship or fellowship grants, and taxable interest was $1,500 or less.

File Form 740 if you are a full-year Kentucky resident and:

have farm, business, rental and/or capital gain income or losses.
itemize deductions.
have additions to or subtractions from federal adjusted gross income (see instructions). Schedule M required.
report on an accrual basis.
claim Kentucky estimated tax payments.
have pension income.

File Form 740-NP if you are a nonresident and:

had income from Kentucky sources.

or are a part-year resident and:

moved into or out of Kentucky during the taxable year.
had income while a resident.
had income from Kentucky sources while a nonresident.

Computer-Generated Returns and 2-D Bar Code

Most software packages produce a 2-D bar code. The Department of Revenue scans the bar code that contains all of the information needed to process your return. The bar code is printed in the upper right-hand corner of the return when you prepare your return using an approved software package. Last minute changes should be entered into the program and the entire return printed again so that the bar code also contains the correct information. This bar code should not be covered up or marked through. Using the bar code reduces data entry errors for the department and results in a faster refund for you.

Check to be sure your software generates an acceptable form. A list of vendors whose software has been approved is posted on the Internet at www.revenue.ky.gov, the Department of Revenue's Web site.

Where to Get Forms

Forms and instructions are available online from the Department of Revenue's Web site at www.revenue.ky.gov and at all Kentucky Taxpayer Service Centers. They may also be obtained by writing FORMS, Kentucky Department of Revenue, Frankfort, KY 40620, or by calling (502) 564-3658.

Address Change

If you move after you file your tax return, please notify the Kentucky Department of Revenue of your new address. This can be done by sending a change of address card (available at your local post of? ce) to: Taxpayer Assistance Section, Kentucky Department of Revenue, P.O. Box 181, Station 56, Frankfort, KY 40602-0181. Notification can also be made to any KentuckyTaxpayer Service Center. A list of locations is included in your packet.

Refund Inquiries

The Automated Refund and Tax Information System (ARTIS) is a touch-tone telephone system designed to provide information about your individual income tax return. Information about electronically filed returns and returns using the preprinted bar-coded labels should be available within 72 hours of receipt. Information about refund request returns filed without the preprinted bar-coded labels will be available after the return has completed initial processing (approximately 12 weeks).

The ARTIS number is (502) 564-1600. It is available 24 hours a day, 7 days a week. If during the call you do not receive a refund mailing date, please allow seven days before calling again.

Need a Copy of Your Tax Return?

If you need a copy of your tax return, you must send your request in writing to: Taxpayer Assistance Section, Kentucky Department of Revenue, P.O. Box 181, Station 56, Frankfort, KY 40602-0181. Please include your name(s) as it appeared on your return, Social Security number(s), and your complete mailing address. To ensure con?dentiality, all requests must include your signature.

How Long Should Records be Kept?

Keep a copy of your tax return, worksheets and records of all items appearing on it (such as Forms W-2 and 1099 or other receipts) until the statute of limitations runs out for that return. Usually, this is four years from the date the return was due or filed (with extensions), or the date the tax was paid, whichever is later. You should keep some records longer. For example, keep property records (including those on your home) as long as they are needed to ? gure the basis of the original or replacement property.

Filing as an Injured Spouse on Your Federal Form 1040?

Kentucky does not recognize the federal injured spouse form. Income tax refunds may be withheld by the department if you owe money to the Kentucky Department of Revenue, another state agency or the Internal Revenue Service.

Kentucky law requires the offset of the entire refund if a joint return is filed. If spouses want to keep their tax liabilities and/or refunds separate, each must file a separate tax form. If you choose to file separately on a combined return, for agencies other than the Department of Revenue, the refund will be apportioned between spouses, based on each spouse's income. The indebted spouse's refund will then be paid to the appropriate agency.

Death of a Taxpayer

If a taxpayer died before filing a return for 2008, the taxpayer's spouse or personal representative may have to file and sign a return for that taxpayer. A personal representative can be an executor, administrator or anyone who is in charge of the deceased taxpayer's property. If the deceased taxpayer did not have to file a return but had tax withheld, a return must be filed to get a refund. The person who files the return should write "DECEASED," the deceased taxpayer's name and the date of death across the top of the return.

If your spouse died in 2008 and you did not remarry in 2008, you can file jointly or separately on a combined return. The return should show your spouse's 2008 income before death and your income for all of 2008. You can also file jointly or separately on a combined return if your spouse died in 2009 before filing a 2008 return. Write "Filing as surviving spouse" in the area where you sign the return. If someone else is the personal representative, he or she must also sign.

Death of Military Personnel Killed in Line of Duty

KRS 141.010(10)(t) exempts all income earned by soldiers killed in the line of duty from Kentucky tax for the years during which the death occurred and the year prior to the year during which the death occurred.

The exemption applies to tax years beginning after December 31, 2001. The income exclusion applies to all income from all sources of the decedent, not just military income. The exclusion includes all federal and state death benefits payable to the estate or any beneficiaries.

Amended returns may be filed for the year the soldier was killed in the line of duty and the year prior to the year of death. The amended returns must be filed within the statute of limitations period; four years from the due date, the extended due date or the date the tax was paid, whichever is later.

If a combined return was filed, the exclusion would apply to the income reported in Column A or Column B of the Kentucky return attributable to the military member. If a joint return was filed, the income must be separated accordingly. Refunds will be issued in the names on the original return. Beneficiaries or estates that received death benefits that were included in a Kentucky return may file an amended return to request a refund of taxes paid
on the benefit.

The Department of Revenue will use the Veterans Administration definition for"in the line of duty," which states that a soldier is in the line of duty when he is in active military service, whether on active duty or authorized leave; unless the death was the result of the person's own willful misconduct.

Income Tax Withholding for 2009

If the amount you owe or the amount you overpaid is large, you may want to change the amount of income tax withheld from your 2009 pay. To do so you must file a new Form K-4 with your employer.

For tax years beginning on or after January 1, 2005, the low income credit has been replaced with a family size tax credit. The Family Size Tax Credit is based on modified gross income and the size of the family. See instructions for Lines 20 and 21 for further explanation of these limitations. Changes have been made to the Special Withholding Exemption Certificate (Form K-4E) to refl ect the Family Size Tax Credit. If you do not expect to have any tax liability
for the current year and you meet the modified gross income requirements, you may be entitled to claim exemption from withholding of Kentucky income tax. The Special Withholding Exemption Certificate (Form K-4E) can be downloaded at http://revenue.ky.gov/business/whtax.htm, the Department of Revenue's Web site.

2009 Estimated Tax Payments

Persons who reasonably expect to have income in excess of $5,000 from which no Kentucky income tax will be withheld may be required to make estimated tax payments on Form 740-ES. However, if the amount of estimated tax is $500 or less, no estimated payments are required. Persons who do not prepay at least 70 percent of the tax liability may be subject to a 10 percent penalty for underpayment of estimated tax. Prepayments for 2009 may be made through withholding, a credit forward of a 2008 overpayment or estimated tax installment payments. The instructions for Form 740-ES include a worksheet for calculating the amount of estimated tax due and for making installment payments. These forms may be obtained from the Kentucky Department of Revenue, Frankfort, KY 40620, or any Kentucky Taxpayer Service Center. You may also download Form 740-ES and instructions at ww.revenue. ky.gov, the Department of Revenue's Web site.

Return Adjustments

If the Department of Revenue adjusts your return and you do not understand the adjustment, you may write to Taxpayer Assistance, Kentucky Department of Revenue, P.O. Box 181, Station 56, Frankfort, KY 40602-0181 or call (502) 564-4581. If you disagree with an adjustment made to your return, you may appeal that adjustment by submitting a written protest within 45 days of notifi cation.

Amended Returns

If you discover that you omitted deductions or otherwise improperly prepared your return, you may obtain a refund by filing an amended return within four years of the due date of the original return. You are required to file an amended return to report omitted income. You may obtain Form 740-X (or Form 740-XP for years prior to 2005) by contacting a Kentucky Taxpayer Service Center or writing FORMS, Kentucky Department of Revenue, Frankfort, KY 40620. You may also download Form 740-X or Form 740-XP at www.revenue.ky.gov, the Department of Revenue's Web site.

Federal Audit Adjustments

Taxpayers who have received a final determination of an Internal Revenue Service audit must submit a copy to the department within 30 days of its conclusion. The information should be submitted to the Individual overnmental Program Sections, Kentucky Department of Revenue, P.O. Box 1074, Station 68, Frankfort, KY 40602-1074.

Confidentiality

Kentucky Revised Statute 131.190 requires the Department of Revenue to maintain strict confidentiality of all taxpayer records. No employee of the Department of Revenue may divulge any information regarding the tax returns, schedules or reports required to be filed. However, the Department of Revenue is not prohibited from providing evidence to or testifying in any court of law concerning offi cial tax records. Also, Department of Revenue employees or any other person authorized to access confidential state information are prohibited from intentionally viewing such information without an official need to view.

The department may provide official information on a confidential basis to the Internal Revenue Service or to any other governmental agency with which it has an exchange of information agreement whereby the department receives similar or useful information in return.

Extension of Time to File

Taxpayers who are unable to file a return by April 15 may request an extension. The request for the extension must be submitted in writing to the Department of Revenue on or before the due date of the return. The request must state a reasonable cause for the inability to file. Inability to pay is not an acceptable reason. Acceptable reasons include, but are not limited to, destruction of records by fi re or fl ood and serious illness of the taxpayer. Extensions are limited to six months. A copy of the Kentucky extension request must be attached to the return.

Individuals who receive a federal extension are not required to request a separate Kentucky extension. They can meet the requirements by attaching a copy of the application for automatic federal extension to the Kentucky return.

IRS extensions by e-file (by personal computer or a tax professional)- Attach a copy of Form 4868 with the confirmation number in the lower righthand corner of the form or a copy of the electronic acknowledgment.

Military Personnel-Kentucky residents who are in the military are often granted extensions for tax filings when serving outside the United States. Any extension granted for federal income tax purposes will be honored for Kentucky income tax purposes.

Combat Zone Extension-Members of the Army, Navy, Marines, Air Force, or Public Health Service of the United States government who serve in an area designated as a combat zone by presidential proclamation shall not be required to file an income tax return and pay the taxes, which would otherwise become due during the period of service, until 12 months after the service is completed. Members of the National Guard or any branch of the Reserves called to active duty to serve in a combat zone are granted the same extension.

Interest and Penalties-Interest at the"tax interest rate" applies to any income tax paid after the original due date of the return. If the amount of tax paid by the original due date is less than 75 percent of the tax due, a late payment penalty may be assessed (minimum penalty is $10).

Interest and penalty charges can be avoided or reduced by sending payment with your extension request by the due date. If you wish to make a payment prior to the due date of your return when using the:

Kentucky Extension-Complete Section II, Kentucky Extension Payment Voucher, of the Application for Extension of Time to File, Form 40A102, and send with payment. Write "KY Income Tax-2008" and your Social Security number(s) on the face of the check.
Federal Automatic Extension-Make a copy of the lower portion of the federal Application for Automatic Extension, Form 4868, and send with payment. Write "KY Income Tax-2008" and your Social Security number(s) on the face of the check.

Personal Property Forms

Kentucky business taxpayers are reminded to report all taxable personal property, except motor vehicles, owned on January 1 to either the property valuation administrator in the county of residence (or location of business) or the Offi ce of Property Valuation in Frankfort. Tangible personal property is to be reported on the Tangible Personal Property Tax Return, Form 62A500. The due date for this return is May 15. Do not mail this return with your income tax return; use a separate envelope.

INSTRUCTIONS

Do You Have to File a Kentucky Return?

If you were a Kentucky resident for the entire year, your filing requirement depends upon your family size, modified gross income, Kentucky adjusted gross income and income from self-employment. You must file if your modified gross income exceeds the amount in Chart A and your Kentucky adjusted gross income exceeds the amount in Chart B.

Complete your federal tax return fi rst. If you are not required to file a federal tax return, see instructions for Line 5.

MODIFIED GROSS INCOME AND FAMILY SIZE

(Use With Chart A)

Family Size-Consists of yourself, your spouse if married and living in the same household and qualifying children. For the purposes of computing the Family Size Tax Credit, the maximum family size is four.

Qualifying Dependent Child-Means a qualifying child as defined in Internal Revenue Code Section 152(c), and includes a child who lives in the household but cannot be claimed as a dependent if the provisions of Internal Revenue Code Section 152(e)(2) and 152(e)(4) apply. In general, to be a taxpayer's qualifying child, a person must satisfy four tests:

Relationship-The taxpayer's child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.
Residence-Has the same principal residence as the taxpayer for more than half the tax year. A qualifying child is determined without regard to the exception for children of divorced or separated parents. Other federal exceptions apply.
Age-Must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.
Support-Did not provide more than one-half of his/her own support for the year.

Chart A
If Your Family Size is:		Your modified Gross Income is greater than:
One ...........................	and	................$10,400
Two............................	and	................$14,000
Three..........................	and	................$17,600
Four or More................	and	................$21,200

Modified Gross Income-modified gross income is the greater of federal adjusted gross income adjusted to include interest income derived from municipal bonds (non-Kentucky) and lump-sum pension distributions not included in federal adjusted gross income; or Kentucky adjusted gross income adjusted to include lump-sum pension distributions not included in federal adjusted gross income.

KENTUCKY ADJUSTED GROSS INCOME

(Use Chart B if modified Gross Income is Greater Than the Amounts in Chart A)

Kentucky Adjusted Gross Income-Consists of your federal adjusted gross income plus any additions and subtractions from Schedule M, Modifi cations to Federal Adjusted Gross Income.

Chart B
If Your Filing Status is:		Your Kentucky Adjusted Gross Income is greater than:
Single Person- Under age 65.....	and	................$3,140
Single Person- Age 65 or over or blind...	and	................$5,140
Single Person- Age 65 or over and blind...	and	................$6,410
Husband and Wife- Both under age 65....	and	................$4,140
Husband and Wife- One age 65 or over...	and	................$5,810
Husband and Wife- Both age 65 or over...	and	................$6,910

TAXPAYERS WITH SELF-EMPLOYMENT INCOME-Must file a Kentucky individual income tax return regardless of the amount of Kentucky adjusted gross income used in the Chart B if you have gross receipts from self-employment in excess of modified gross income for your family size in Chart A.

TIP: Even though the filing requirements are not met, an income tax return must be filed to claim a refund of the Kentucky taxes withheld.

FILING REQUIREMENTS

Part-time or part-year workers may have income taxes withheld from their paychecks even though the filing requirements are not met. An income tax return must be filed to claim a refund of the Kentucky taxes withheld.

A child meeting the filing requirements must file a return even though being claimed as a dependent by the parent. Kentucky income tax law contains no special provisions for taxing the income of a minor child at the parent's tax rates nor the reporting of income of a child on the parent's return.

Generally, all income of Kentucky residents, regardless of where it was earned, is subject to Kentucky income tax. Nonresidents and part-year residents must report income on Form 740-NP.

Military Personnel-Members of the Armed Forces are required to file state income tax returns with their state of legal domicile, which usually is the state of residence prior to entering military service. Kentucky residents serving outside of the United States are not exempt from taxes because of foreign assignments. Any income earned in a combat zone that is exempt for federal tax purposes is also exempt for Kentucky tax purposes.

Kentucky residents who are in the military are often granted extensions for military service when serving outside the United States. Any extension granted for federal income tax purposes will be honored for Kentucky income tax purposes.

For Fiscal Year Filers Only-Most people pay taxes for a calendar year. However, if you file for a taxable year other than a calendar year or for part of a year, enter the beginning and ending dates of that year on the line at the top of the form.

When and Where to File

The income tax return for calendar year 2008 must be postmarked or submitted electronically no later than April 15, 2009, to avoid penalties and interest. Mail to:

Refund/Other Returns

Kentucky Department of Revenue
Frankfort, KY 40618-0006

Pay Returns

Kentucky Department of Revenue
Frankfort, KY 40619-0008

Taxpayers who expect refunds should file as early as possible to receive refunds promptly. If you have your tax return prepared by another person, you may wish to mail the return yourself in order to ensure prompt filing.

Envelopes

Use the blue envelope for refund returns. Use the yellow envelope for pay returns. Affi x the label in the return address area of the envelope you use. The size of the envelope has been increased which means your return only needs to be folded in half. This reduces the thickness of the envelope and increases the efficiency of our mail opening equipment.

Address Labels

Use the preprinted, bar-coded labels provided in this packet. This will enable us to tell you that your return has been received. If the name or address is incorrect, discard the labels and print the requested information in the blocks provided. The labels are for informational purposes only and do not increase your chances of being audited. Use of the labels speeds processing and enhances accuracy for paper returns.

Social Security Number

SSN Needed-You must enter your Social Security number (SSN) on the return. Social Security numbers are not printed on the peel-off labels mailed by the Department of Revenue. If you are married filing a joint return or filing separately on a combined return, make sure that you enter the names and SSNs in the same order each year.

TIP-For the first person (yourself) listed on the return, use SSN boxes labeled B to enter your SSN. For the second person (spouse) listed on the return, use SSN boxes labeled A to enter your spouse's SSN.

Political Party Fund Designation

You may designate $2 of your taxes to either the Democratic or Republican party if you have a tax liability of at least $2 ($4 for married persons filing joint returns). Fifty cents will be paid to the corresponding political organization in your county of residence and the remainder will be paid to the respective state political party. This designation will not increase your tax or decrease your refund. You may make this designation by checking the applicable box. A husband and wife may each make a designation. Persons making no designation should check the "No Designation" box.

Reporting Periods and Accounting Procedures

Kentucky law requires taxpayers to report income on the same calendar or fi scal year and to use the same methods of accounting as required for federal income tax purposes. Any federally approved change in accounting period or methods must be reported to the Kentucky Department of Revenue. Attach a copy of the federal approval.

Changes to federal income tax law made after the Internal Revenue Code reference date contained in KRS 141.010(3) shall not apply for purposes of Chapter 141 unless adopted by the General Assembly.

Filing Status

Legal liabilities are affected by the choice of filing status. Married persons who file joint or combined returns are jointly and severally liable for all income taxes due for the period covered by the return. That is, each spouse may be held legally responsible for payment of taxes on income earned by the other. If spouses want to credit the refund of one against the liability of the other or combine their tax liabilities or refunds, they must file a combined return. If spouses want to keep their tax liabilities and/or refunds separate, each must file a separate tax form.

Check the box that describes your filing status. If you are married, filed a joint federal return and both you and your spouse had income, you may be able to reduce your tax by using Filing Status 2 rather than Filing Status 3.

Filing Status 1, Single-Use this filing status if you are unmarried, divorced, widowed, legally separated by court decree, or if you filed as "Head of Household" or "Qualifying Widow(er)" on your federal return.

Filing Status 2, Married Filing Separately on This Combined Return-Use this filing status to report your incomes individually but on only one tax form. You do this by filling in both Columns A and B. You may file separately on this combined return regardless of whether you filed jointly or separately for federal purposes if both you and your spouse had income. This filing status usually results in a lower tax than Filing Status 3.

Each spouse must claim his or her own income and deductions. The total of Line 5, Columns A and B, must equal your and your spouse's federal adjusted gross income.

Filing Status 3, Married Filing Joint Return-Use this filing status if you and your spouse choose to file a joint return even if one spouse had no income. Jointly means that you and your spouse add your incomes together and report in Column B. If both you and your spouse have income, it may be to your benefi t to use Filing Status 2.

Filing Status 4, Married Filing Separate Returns-If using this filing status, you and your spouse must file two separate tax forms. The husband's income is reported on one tax form, the wife's on the other. When filing separate returns, the name and Social Security number of each spouse must be entered on both returns. Enter the spouse's Social Security number in the block provided, and enter the name on Line 4.

Adjusted Gross Income

LINE 5, Federal Adjusted Gross Income

Enter the total amount of your federal adjusted gross income from your federal income tax return in Column B if Filing Status 1, 3 or 4 is used. Use Column A only when entering your spouse's income on a combined return (Filing Status 2). When using Filing Status 2, Columns A and B, Line 5, must equal your federal adjusted gross income. (Do not confuse federal adjusted gross income with federal taxable income shown on the federal return.)

Where husband and wife have filed a joint return for federal income tax purposes and have not elected to file a joint Kentucky income tax return, each spouse must claim his or her own income and deductions.

If you are not required to file a federal income tax return, enter on Line 5 the total of wages, salaries, tips, fees, commissions, bonuses, other payments for personal services, taxable scholarships and fellowships, taxable interest and dividends, trade or business income, unemployment compensation and all other income from sources within and without Kentucky including amounts not reported on attached wage and tax statements. If you have income not supported by a wage and tax statement, attach a supporting schedule showing the source and amount.

Determining Kentucky Adjusted Gross Income-Kentucky law requires that the individual income tax return begin with federal adjusted gross income and be adjusted for any differences to arrive at Kentucky adjusted gross income. Schedule M is designed to make "additions to" federal adjusted gross income and provides for "subtractions from" federal adjusted gross income. For a list of differences, see the Federal/Kentucky Individual Income Tax Differences chart and the line-by-line instructions.

LINE 6-Additions to Federal Adjusted Gross Income

Enter amount from Schedule M, Part I, Line 7.

LINE 8-Subtractions from Federal Adjusted Gross Income

Enter amount from Schedule M, Part II, Line 18.

LINE 9-Kentucky Adjusted Gross Income

Subtract Line 8 from Line 7. This is your Kentucky Adjusted Gross Income.

Taxable Income

LINE 10, Deductions

Itemizers, complete Schedule A and enter allowable deductions on Line 10. If one spouse itemizes deductions, the other must itemize. See specific instructions for Schedule A.

Nonitemizers, enter the standard deduction of $2,100. If married filing separately on a combined return, enter $2,100 in both Columns A and B. If filing a joint return, only one $2,100 standard deduction is allowed.

LINE 11

Subtract Line 10 from Line 9. This is your Taxable Income.

Tax

LINE 12-Determining Your Tax

Tax Table or Computation-An optional tax table is located elsewhere in this publication for your convenience. You may use this table whether or not you itemize. Married taxpayers filing separately on a combined return may use the tax table or the tax rate schedule, or one spouse may use the tax table and the other the tax rate schedule. If you choose not to use the tax table, compute your tax using the tax rate schedule below.

Tax Rate Schedule

If taxable amount is:	Tax is:
$3,000 or less .....	2% of taxable amount
over $3,000 but not over $4,000 ....	$60 plus 3% of amount over $3,000
over $4,000 but not over $5,000 ....	$90 plus 4% of amount over $4,000
over $5,000 but not over $8,000 ....	$130 plus 5% of amount over $5,000
over $8,000 but not over $75,000 ..	$280 plus 5.8% of amount over $8,000
over $75,000 ...	$4,166 plus 6% of amount over $75,000

Farm Income Averaging, Schedule J-If you elect farm income averaging on your federal return, you may also use this method for Kentucky. The amount of income you may average is limited to the amount elected for federal purposes. Enter tax from Schedule J, Line 22, on Form 740, Line 12, and check the box for "Schedule J." Attach completed Schedule J.

LINE 13, Lump-sum Distribution-Special 10–Year Averaging

Kentucky allows a special 10-year averaging method for determining tax on lump-sum distributions received from certain retirement plans that qualify for federal 10-year averaging. If this special method is used for federal purposes, Form 4972-K, Kentucky Tax on Lump-Sum Distributions, and Schedule P, Pension Income Exclusion, must be filed with Form 740. Enter tax from Form 4972-K and check the box.

Recycling Composting Recapture-Enter amount from Schedule RC-R and check the box.

If both Form 4972-K and Schedule RC-R are used, add the amounts together and enter the total on Line 13.

LINE 15

Enter amounts from page 2, Section A. See instructions for Section A.

LINE 17

Enter amounts from page 3, Section B. See instructions for Section B.

LINE 19, Total Tax Liability

Married taxpayers filing a combined return must add the amounts on Line 18, Columns A and B, and enter the sum on Line 19. Other taxpayers should enter the amount from Line 18, Column B, on Line 19.

LINE 20 and LINE 21, Family Size Tax Credit

The Family Size Tax Credit is based on modified gross income (MGI) and the size of the family. If your total MGI is $28,196 or less, you may qualify for Kentucky Family Size Tax Credit.

STEP ONE-Determine your family size. Check the box on Line 20 to the right of the number that represents your family size.

Family Size-Consists of yourself, your spouse if married and living in the same household and qualifying children.

Family Size 1 is an individual either single, or married living apart from his or her spouse for the entire year. You may qualify for the Family Size Tax Credit even if you are claimed as a dependent on your parent's tax return.

Family Size 2 is an individual with one qualifying child or a married couple.

Family Size 3 is an individual with two qualifying children or a married couple with one qualifying child.

Family Size 4 is an individual with three or more qualifying children or a married couple with two or more qualifying children.

Relationship-Must be the taxpayer's child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.

Residence-Has the same principal residence as the taxpayer for more than half the tax year. A qualifying child is determined without regard to the exception for children of divorced or separated parents.

Age-Must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.

Support-Did not provide more than one-half of his/her own support for the year.

STEP TWO-Determine modified gross income.

FORM 740 WORKSHEET FOR COMPUTATION OF MODIFIED GROSS INCOME FOR FAMILY SIZE TAX CREDIT
(a) Enter your federal adjusted gross income from Line 5. If zero or less, enter zero	(a)_________
(b) If married filing separately on a combined return or married filing separate returns and living in the same household, enter your spouse's federal adjusted gross income. If zero or less, enter zero	(b)_________
(c) Enter tax-exempt interest from municipal bonds (non-Kentucky)	(c)_________
(d) Enter amount of lump-sum distributions not included in federal adjusted gross income (federal Form 4972)	(d)_________
(e) Enter total of Lines (a), (b), (c) and (d)	(e)_________
(f) Enter your Kentucky adjusted gross income from Line 9. If zero or less, enter zero	(f)_________
(g) If married filing separately on a combined return or married filing separate returns and living in the same household, enter your spouse's Kentucky adjusted gross income from Line 9. If zero or less, enter zero	(g)_________
(h) Enter amount of lump-sum distributions not included in adjusted gross income (Kentucky Form 4972-K)	(h)_________
(i) Enter total of Lines (f), (g) and (h)	(i)_________
(j) Enter the greater of Line (e) or (i). This is your modified Gross Income. Use this amount to determine if you qualify for the Family Size Tax Credit	(j)_________

STEP THREE-Use the Family Size Table to look up the percentage of credit and enter in the space provided on Line 21.

STEP FOUR-Multiply tax from Line 19 by the percentage and enter on Line 21. This is your Family Size Tax Credit.

LINE 23, Education Tuition Tax Credit

Complete Form 8863-K to claim this credit. You may claim 25 percent of the federal Hope and Lifetime Learning credit if:

the expenses claimed are from a Kentucky institution;
the expenses are for undergraduate studies; and
your Kentucky filing status is single, married filing separately on a combined return, or married filing a joint
return.

Any unused credit may be carried forward up to five years. In order to establish the carryforward, you must file Form 8863-K.

LINE 25, Child and Dependent Care Credit

Enter in the space provided the amount of credit calculated on federal Form 2441, Line 9 (or Form 1040A, Schedule 2, Line 9), for child and dependent care expenses. Multiply this amount by 20 percent (.20), and enter result on Line 25.

If you do not meet the filing requirements to file a federal income tax return but would have been entitled to the federal child and dependent care credit, you may claim the child and dependent care credit for Kentucky purposes. Complete and attach federal Form 2441, state on the form "did not meet federal filing requirements" and follow instructions for Line 25.

LINE 27, Kentucky Use Tax

Important Reminder from the Department of Revenue About Out-of-State Purchases

Pursuant to KRS 139.330, a 6 percent use tax is due if you make out-of-state purchases for storage, use or other consumption in Kentucky and did not pay at least 6 percent state sales tax to the seller at the time of purchase. For example, if you order from catalogs, make purchases through the Internet, or shop outside Kentucky for items such as clothing, shoes, jewelry, cleaning supplies, furniture, computer equipment, software, office supplies, books, souvenirs, exercise equipment or subscribe to magazines, you may owe use tax to Kentucky. It is important to remember that use tax applies only to items purchased outside Kentucky, including another country, which would have been taxed if purchased in Kentucky.

Two options are available to report and pay use tax.

Form 51A113, Kentucky Consumer's Use Tax Return, may be filed during the year each time you make taxable purchases; or
You can report and pay use tax on an annual basis at the same time you file your Kentucky individual income tax return. For your convenience, a Use Tax Calculation Worksheet is provided below.

Credit Against the Kentucky Use Tax Due

You may reduce or eliminate the amount of Kentucky use tax due by the amount of state sales tax paid to the out-of-state seller. The reduction may not exceed the amount of Kentucky use tax due on the purchase. For example, if Georgia state sales tax of 4 percent is paid, only the additional 2 percent is due to Kentucky, or if Illinois state sales tax of 6.25 percent is paid, no additional Kentucky use tax is due.
Sales tax paid to a city, county or country cannot be used as a credit against the Kentucky use tax due.

Need more information about use tax?

Visit our Web site at: www.revenue.ky.gov

Call or write:

Kentucky Department of Revenue
Attention: Use Tax
P.O. Box 181, Station 53
Frankfort, KY 40602-0181

Monday-Friday
8 a.m.-5:00 p.m., ET
(502) 564-5170

Use Tax Calculation Worksheet

Purchases Subject
to Kentucky Use Tax ..................... $_____
Multiply by .06 (6%) ......................... x .06
Use Tax ....................................... $_____

Report this amount on Form 740, Line 27; or 740-EZ, Line 9.

LINE 30(a), Tax Withheld

Enter the amount of 2008 Kentucky income tax withheld by your employer(s). This amount is shown on wage and tax statements, including Forms 1099 and W-2G, which you must attach to Form 740 in the designated area.

You will not be given credit for Kentucky income tax withheld unless you attach the wage and tax statements or other supporting documents refl ecting Kentucky withholding.

Employers are required to give these statements to employees no later than January 31, 2009. If by March 1 you are unable to obtain a wage and tax statement from an employer, contact the Department of Revenue for instructions.

You may not claim credit for tax withheld by another state. Within certain limitations, Kentucky residents may claim a credit for nonrefundable indiviual income tax paid to other states. See Section A, Line 4.

Local government occupational, license or income tax must not be included on Line 30(a).

LINE 30(b), Estimated Tax Paid

Enter Kentucky estimated tax payments made for 2008 and amounts credited from the 2007 return.

Also, include on Line 30(b) payments prepaid with extension requests. Identify as "prepaid with extension."

LINE 31

Total of amounts on Lines 30(a) and 30(b).

Compare the amounts on Lines 29 and 31. If Line 31 is larger than Line 29, subtract Line 29 from Line 31. Enter the difference on Line 32. This is the AMOUNT OVERPAID.

If Line 31 is smaller than Line 29, you owe additional tax. Subtract Line 31 from Line 29. Enter on Line 40. For instructions on payment, see Line 43, Amount You Owe.

LINE 32, Amount Overpaid

If you have an overpayment on Line 32 you may have all of this amount refunded to you. You also may contribute all or part of it to the Nature and Wildlife Fund, the Child Victims' Trust Fund, the Veterans' Program Trust Fund, and/or the Breast Cancer Research and Education Trust Fund and/or credit all or part of it toward your 2009 estimated tax.

Voluntary Refund Contributions

Donations to the following funds are voluntary and amounts donated will reduce your refund. You may contribute all or a portion of your overpayment to one or more of the following funds. Enter the amount you wish to contribute on the appropriate lines.

LINE 33, Nature and Wildlife Fund

Contributions to this fund are used to acquire and manage Kentucky's finest natural areas as state nature preserves and for nongame species protection. The Kentucky Department of Fish and Wildlife Resources and the Kentucky State Nature Preserves Commission work together to protect Kentucky's rare plants and animals; acquire the most precious and threatened forests, wetlands and prairies; and manage Kentucky's diverse wildlife. Your tax deductible contributions play a critical role in protecting and managing the best examples of Kentucky's natural environment for the future. Contributions may also be made directly to the Nature and Wildlife Fund, c/o the Kentucky State Nature Preserves Commission, 801 Schenkel Lane, Frankfort, KY 40601, or c/o the Kentucky Department of Fish and Wildlife Resources, #1 Sportsman's Lane, Frankfort, KY 40601.

LINE 34, Child Victims' Trust Fund

Contributions to this fund finance local programs designed to prevent the sexual abuse and exploitation of children. This fund is administered through the Attorney General's Office and relies solely on the tax deductible contributions made by interested citizens. Contributions may also be made directly to the Child Victims' Trust Fund, c/o Kentucky Attorney General, Capitol Building, Frankfort, KY 40601.

LINE 35, Veterans' Program Trust Fund

Contributions to this fund are administered by a Board of Directors, who are all veterans. The Trust Fund is used to provide services to veterans that are not already resourced by state law or federal appropriation. In an effort to recognize the service and sacrifice of Kentucky's deserving veterans, the fund supports programs such as state veterans nursing homes, state veterans cemeteries, homeless veterans transition facilities, and transportation for disabled veterans. Contributions may also be made directly to the Kentucky Veterans' Program Trust Fund, 1111B Louisville Road, Frankfort, KY 40601.

LINE 36, Breast Cancer Research and Education Trust Fund Contribution

Contributions will be used to fund breast cancer research, education, awareness, treatment and screening. Additional information may be obtained from the Division of Women's Health, (502) 564-2154 or at http://chfs.ky.gov/dph/info/wpmh/. Contributions may also be made directly to the state Department for Public Health, Division of Administration and Financial Management, 275 East Main Street, HS1GWA, Frankfort, KY 40621, (502) 564-6663.

LINE 38, Estimated Tax

You may credit all or part of the overpayment toward your estimated tax liability for 2009.
Enter the amount you want credited on Line 38.

LINE 39

Subtract amounts entered on Lines 37 and/or 38 from Line 32. Enter the difference, if any, on Line 39. This amount will be refunded to you. If the total of Lines 37 and 38 equals the amount on Line 32, enter a zero on Line 39. Note: If the amount of Kentucky tax you overpaid is excessive, obtain a copy of Form K-4A from your employer. If you are entitled to additional allowances, file a new Form K-4 with your employer to reduce the amount of Kentucky tax withheld.

LINE 40

This is your additional tax due before penalties and interest.

Note: If you cannot pay your tax in full, file your return and pay as much as possible by April 15. Contact the Department of Revenue for additional payment information.

Penalties and Interest

LINE 41(a), Underpayment of Estimated Tax-If the amount owed is more than $500 and more than 30 percent of the income tax liability on Line 26, you may be subject to a penalty of 10 percent of the underpayment of estimated
tax.

The amount of the penalty may be calculated on Form 2210-K, which may be obtained from the Department of Revenue. Form 2210-K may also be used by qualifying farmers and others to claim exemption to the penalty. If paying the penalty or claiming an exemption, complete Form 2210-K, attach it to your return and check the box beside Line 41(a). Enter the amount of the penalty on Line 41(a). The minimum penalty is $25.

If your return is filed after April 15, 2009, or any tax due on the return is paid after April 15, 2009, you may be subject to additional penalties and interest.

LINE 41(b), Interest-Interest will be assessed at the "tax interest rate" from the original due date of the return until the date of payment.

LINE 41(c), Late Payment Penalty-If the amount of tax due as shown on Line 40 is not paid by the original due date of the return, a penalty of 2 percent of the tax computed due may be assessed for each 30 days or fraction thereof that the tax is past due, not to exceed 20 percent. The minimum penalty is $10. However, if the amount timely paid is 75 percent of the tax determined due by the Department of Revenue, no late payment penalty will be assessed.

LINE 41(d), Late Filing Penalty-If a return is not filed by the due date or the extended due date, a penalty of 2 percent of the total tax due for each 30 days or fraction thereof that a return is not filed may be assessed, not to exceed 20 percent. The minimum penalty is $10.

Note: Penalties but not interest may be reduced or waived if reasonable cause for reduction or waiver can be shown.

LINE 43, Amount You Owe-When filing the return, you must pay any tax due shown on Line 43. Attach check payable to Kentucky State Treasurer to your return. To help identify your payment properly, write "KY Income Tax-2008" and your Social Security number on the face of the check. Attach check at the left side of Form 740. Place the check on TOP of any wage and tax statements.

Pay by Credit Card or eCheck-Pay your 2008 Kentucky individual income tax by MasterCard or VISA credit card or by eCheck (electronic check) through April 15, 2009. Access the Department of Revenue's secure Web site (www.revenue. ky.gov) to make electronic payments over the Internet. Click on the KY E-Tax logo or choose Electronic Services from the menu, then click on Electronic Payment. If you do not have access to the Internet, you may call the Department of Revenue at (502) 564-4581.

To make a credit card payment, the following information is needed: credit card type, credit card number, expiration date, and the cardholder's address as it appears on the credit card billing statement. To make an eCheck payment, the following information is needed: bank name, bank account number, and bank routing number.

SECTION A-BUSINESS INCENTIVE AND OTHER TAX CREDITS

Line 1, Nonrefundable Limited Liability Entity Tax Credit (KRS 141.0401(2))

An individual that is a partner, member or shareholder of a limited liability pass-through entity is allowed a limited liability entity tax (LLET) credit against the income tax imposed by KRS 141.020 equal to the individual's proportionate share of LLET computed on the gross receipts or gross profi ts of the limited liability pass-through entity as provided by KRS 141.0401(2), after the LLET is reduced by the minimum tax of $175 and by other tax credits which the limited liability pass-through entity may be allowed. The credit allowed an individual that is a partner, member, or shareholder of a limited liability pass-through entity against income tax shall be applied only to income tax assessed on the individual's proportionate share of distributive income from the limited liability pass-through entity as provided by KRS 141.0401(3) (b). Any remaining LLET credit shall be disallowed and shall not be carried forward to the next year.

Nonrefundable Kentucky limited liability entity tax credit (KRS 141.0401(2))-The credit amount is shown on Kentucky Schedule(s) K-1 from pass-through entities (PTEs) or Form(s) 725 for single member limited liability companies. Copies of Kentucky Schedule(s) K-1 or Form(s) 725 must be attached to your return.

Kentucky Limited Liability Entity Tax Credit Worksheet Complete a separate worksheet for each LLE. Retain for your records. Name ____________________________________ Address __________________________________ FEIN _____________________________________
Percentage of Ownership.......................	___________%
1. Enter Kentucky taxable income from Form 740, Line 11 ......	___________
2. Enter LLE income as shown on Kentucky Schedule K-1 or Form 725 .......	___________
3. Subtract Line 2 from Line 1 and enter total here .......	___________
4. Enter Kentucky tax on income amount on Line 1 ......	___________
5. Enter Kentucky tax on income amount on Line 3 .....	___________
6. Subtract Line 5 from Line 4. If Line 5 is larger than Line 4, enter zero. This is your tax savings if income is ignored ........	___________
7. Enter nonrefundable limited liability entity tax credit (from Kentucky Schedule K-1 or Form 725) .....	___________
8. Enter the lesser of Line 6 or Line 7. This is your credit. Enter here and on Form 740, Section A, Line 1 .....	___________

Line 2, Skills Training Investment Tax Credit

Enter the amount of credit certified by the Bluegrass State Skills Corporation. A copy of the Kentucky Schedule K-1 for the year the credit was approved must be attached to the return in the first year the credit is claimed. The excess credit over the income tax liability in the year approved may be carried forward for three successive taxable years. For information regarding the application and approval process for this credit, contact the Cabinet for Economic Development, Bluegrass State Skills Corporation at (502) 564-2021.

Line 3, Historic Preservation Restoration Tax Credit

This credit is available to owner-occupied residential and commercial preservation projects for structures that are listed in the National Register of Historic Places, or in a National Register historic district, up to $3 million annually. The credit is 30 percent of certifi ed rehabilition expenses for owneroccupied residential properties, not to exceed $60,000 per project, and 20 percent for commercial and income-producing properties. To qualify, an owner must spend at least $20,000 on rehabilitation.

Individuals or businesses can apply the credit against their state income tax liability, carry the credit forward up to seven years or transfer it to a banking institution to leverage fi nancing. For more information regarding this credit, visit the Kentucky Heritage Council's Web site at www.heritage. ky.gov, or call (502) 564-7005.

Line 4, Credit for Tax Paid to Another State

Kentucky residents are required to report all income received including income from sources outside Kentucky. Within certain limitations, a credit for income tax paid to another state may be claimed. The credit is limited to the amount of Kentucky tax savings had the income reported to the other state been omitted, or the amount of tax paid to the other state, whichever is less.

You may not claim credit for tax withheld by another state. You must file a return with the other state and pay tax on income also taxed by Kentucky in order to claim the credit. A copy of the other state's return including a schedule of income sources must be attached to verify this credit. If you owe tax in more than one state, the credit for each state must be computed separately.

Reciprocal States-Kentucky has reciprocal agreements with specific states. These agreements provide for taxpayers to be taxed by their state of residence, and not the state where income is earned. Persons who live in Kentucky for more than 183 days during the tax year are considered residents and reciprocity does not apply. The states and types of exemptions are as follows:

Illinois, West Virginia-wages and salaries
Indiana-wages, salaries and commissions
Michigan, Wisconsin-income from personal services (including salaries and wages)
Ohio-wages and salaries. Note: Wages which an S corporation pays to a shareholder-employee if the shareholder-employee is a "twenty (20) percent or greater" direct or indirect equity investor in the S corporation shall not be exempt under the reciprocity agreement.
Virginia-commuting daily, salaries and wages

Kentucky does not allow a credit for tax paid to a reciprocal state on the above income. If tax was withheld by a reciprocal state, you must file directly with the other state for a refund of those taxes.

Credit for Taxes Paid to Other State Worksheet Kentucky residents/part-year residents only. Complete a separate worksheet for each state. See instructions for Form 740, Section A, Line 4. TIP-Credit for taxes paid to another state may be reduced or eliminated if gambling losses are claimed on Schedule A.
Name of other state .................	___________
1. List Kentucky taxable income from Form 740, Line 11 .......	___________
2. List any gambling losses from Schedule A, Line 29 ......	___________
3. Add Lines 1 and 2 and enter total here .......	___________
4. List income reported to other state included on Kentucky return ...	___________
5. Subtract Line 4 from Line 3 and enter total here ......	___________
6. Adjusted gambling losses. Compute gambling losses allowed on Kentucky return if income from other state is ignored .....	___________
7. Subtract Line 6 from Line 5 and enter total here ....	___________
8. Enter Kentucky tax on income amount on Line 7 ......	___________
9. Enter Kentucky tax on income amount on Line 1 ......	___________
10. Subtract Line 8 from Line 9. This is the tax savings on return if other state's income is ignored .....	___________
11. Enter tax paid to other state on income claimed on Kentucky return .	___________
12. Enter the lesser of Line 10 or Line 11. This is your credit for tax paid to other state. Carry this total to Form 740, Section A, Line 4 ...	___________

Line 5, Employer's Unemployment Tax Credit

If you hired unemployed Kentucky residents to work for you during the last six months of 2007 or during 2008, you may be eligible to claim the unemployment tax credit. In order to claim a credit, each person hired must meet specifi c criteria. For each qualifi ed person, you may claim a tax credit of $100. The period of unemployment must be certifi ed by the Office of Employment and Training, Education Cabinet, 275 East Main Street, 2-WA, Frankfort, KY 40621-0001, and you must maintain a copy of the certifi cation in your files.

Line 6, Recycling and/or Composting Tax Credit

Individuals who purchase recycling or composting equipment to be used exclusively in Kentucky for recycling or composting postconsumer waste materials, are entitled to a credit against the tax equal to 50 percent of the installed cost of the equipment pursuant to KRS 141.390. Application for this credit must be made on Schedule RC, which may be obtained from the Department of Revenue. A copy of Schedule RC and/or Schedule RC (K-1) reflecting the amount of credit approved by the Department of Revenue must be attached to the return.

Kentucky Tax Help Links

» Kentucky Form 740
» Kentucky Form 740-V
» Kentucky Form 740-X
» Kentucky Form 740-EZ
» Kentucky Form 740 Schedule A
» Kentucky Form 740 Schedule J
» Kentucky Form 740 Schedule M
» Kentucky Form 740 Schedule P
» Kentucky Form 2210-K
» Kentucky Form 4972-K
» Kentucky Form 8453-K
» Kentucky Form 8582-K
» Kentucky Form 8863-K
» Additional Kentucky forms
» Additional Kentucky State Income Tax Return Form, e-File, and Government Information
» Access tax help for additional states