The Kentucky Department of Revenue (DOR) has released revised 2018 withholding tables and computer formula in response to recently enacted legislation that replaces the graduated personal and corporate income tax tables with a flat income tax rate of 5%.

Also effective with tax years beginning on and after January 1, 2018, there are no longer any withholding tax exemptions allowed and Form K-4, Kentucky Department of Revenue Employee's Withholding Exemption certificatewill no longer apply. (HB 366.)

The Kentucky legislature overrode the governor's veto of this legislation. The previous individual income tax brackets ranged from 2% to 6%. Corporate income tax rates ranged from 4% to 6%.

According to a DOR withholding tax section representative, the revised withholding tables are effective with wages paid on an after June 1, 2018. Employers are not required to retroactively adjust withholding, but should begin using the revised withholding tables by June 1, 2018. (Telephone conversation, May 9, 2018.)

Wage bracket withholding and computer formula for 2018

The new formula uses the flat rate of 5% of taxable income. Withholding tax exemptions are not taken into account, only the standard deduction, which is $2,530 for 2018. No other formula or withholding method (except wage-withholding) may be used unless specific written approval is granted by the Department of Revenue.

Also released are the revised wage-bracket withholding tables reflecting the new 5% rate.

Further information may be obtained by writing the Withholding Tax Branch, Kentucky Department of Revenue, PO Box 1274, Frankfort, KY 40602–1274.

The DOR plans to update the employer withholding tax guide with instructions regarding the new flat rate and elimination of the withholding tax exemptions. Kentucky Form K-4 will no longer be in use and will soon be removed from the website. According to the withholding tax representative, employers should disregard previously provided Forms K-4 and not collect new Forms K-4 from new employees. (Telephone conversation, May 9, 2018.)

The exclusion limit for pension/retirement plan distributions is reduced from $41,110 to $31,110 effective for tax years beginning on and after January 1, 2018.

We will release another alert when further revisions are posted to the DOR's withholding tax website.

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