November 12, 2020
Kentucky issues draft 2021 withholding tables and revised Form W-4, as well as 2020 Form W-2 filing reminders; all employers must file and pay electronically by 2022
The Kentucky Department of Revenue released the draft 2021 income tax withholding tables and computer formulato its website. A draft 2021 Form K-4, Kentucky's Withholding Certificate, has also been released. The final versions are expected to be published in December 2020.
The Kentucky 2021 standard deduction amount increases to $2,690, up from $2,650 for 2020.
Effective with tax years beginning on and after January 1, 2018, Kentucky enacted a flat 5% income tax (HB 366), replacing the graduated personal and corporate income tax tables. Due to this change, all Kentucky taxpayers are taxed at 5% with an allowance for the standard deduction.
Supplemental rate of withholding
Under Kentucky regulations (103 KAR 18:070), if supplemental wages are paid at the same time as regular wages, the tax to be withheld is determined as if the aggregate of the supplemental and regular wages were a single wage payment for the regular payroll period.
If supplemental wages are paid at a different time, the employer determines the tax to be withheld by aggregating the supplemental wages either with the regular wages for the current payroll period or with the regular wages for the last preceding payroll period within the same calendar year.
The flat income tax rate of 5% eliminates the need for a supplemental withholding rate.
Effective with tax years beginning on and after January 1, 2018, withholding tax exemptions are not allowed and Form K-4 is only required to be completed by an individual declaring exemption status or who is requesting additional withholding per pay period.
Form K-4 also replaced Form K-4E, Special Withholding Exemption Certificate,for claiming exemption from Kentucky income tax withholding.
All employers required to electronically file and pay periodic withholding returns and payments by 2022
The Department released changes to withholding tax regulations that will require all employers to file and pay withholding tax returns and payments electronically by 2022.
Under the revised regulations, for tax periods beginning on or after January 1, 2021, employers that are twice-monthly filers (withholding $50,000 or more per year) and monthly filers (withholding $2,000-$49,999 per year) will be required to file and pay state income tax withholding electronically. For tax periods beginning on or after January 1, 2022, all withholding tax filers will be required to file and pay electronically.
Currently, employers are not required to file periodic withholding tax returns electronically.
Employers required to file Form W-2 electronically
The deadline for filing the 2020 Forms W-2 is January 31, 2021 (nothing on the website indicates whether the due date will advance to February 1, 2021, since January 31, 2021 is on a Sunday).
Employers submitting 26 or more Forms W-2/1099 to the Department must do so electronically over the Department's website (preferred method) or on CD-ROM. Forms 1099 are only filed on CD with the Department if state income tax was withheld.
Employers reporting fewer than 26 Forms W-2 that cannot file electronically or on CD are required to file Form K-5 online, listing the information from the Forms W-2 on Form K-5 rather than submitting the actual Forms W-2. Paper copies of Forms W-2 should not be mailed to the Department and those received by the Department will not be processed and will not be considered filed. Employers are instructed to retain the Forms W-2 for their records and only provide copies upon request. Form K-5 is completed online and either filed electronically by clicking the submit button or printed with a barcode and mailed to DOR. The K-5 print-and-mail option is only available for those reporting fewer than 26 withholding statements.
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