June 2, 2021
Kentucky eliminates composite returns for nonresident individuals and extends deadline to apply for major recycling credit
With the enactment of House Bill 249 on March 29, 2021, Kentucky eliminated composite returns for nonresidents and extended the deadline to apply for the major recycling credit.
Pass-through entity composite returns
HB 249 amended Ky. Rev. Stat. 141.206(15) by striking provisions related to composite returns (filed on behalf of nonresident individual partners, members or shareholders) for tax years beginning on or after January 1, 2022. As a result, a pass-through entity may no longer file a composite return on behalf of its electing nonresident individual partners, members or shareholders. The pass-through entity will instead be required to make quarterly estimated withholding payments on behalf of its nonresident individual partners, members or shareholders and furnish a statement to those individuals showing the amount of tax paid on their behalf for the tax year. The statement shall be furnished on a form to be released by the Kentucky Department of Revenue and furnished to the partner, member or shareholder on or before the 15th day of the fourth month after the end of the pass-through entity's tax year. Thus, nonresident individuals who have historically not had a Kentucky filing obligation because the pass-through entity they owned filed a composite return on their behalf could have a Kentucky return-filing obligation beginning in 2022.
HB 249 also amends Ky. Rev. Stat. 141.206 to eliminate a pass-through entity's obligation to withhold tax on behalf of a corporate partner for tax years beginning on or after January 1, 2022.
Major recycling project tax credit — extension of time to apply
HB 249 extends the deadline for applying for the tax credit for a major recycling project for tax years beginning on or after January 1, 2020, but before January 1, 2024. For that period, an application may also be made on or before the first day of the seventh month following either: (1) the close of the tax year in which the equipment is placed in service or (2) the close of the tax year immediately following the tax year in which the recycling or composting equipment is purchased or placed in service.
Taxpayers should consider the impact of the inability to file elective composite returns after 2021, along with the other tax provisions discussed previously. Nonresident individuals that have historically not had a Kentucky income tax filing obligation because a pass-through entity they owned filed a composite return on their behalf could have a separate Kentucky filing obligation beginning in 2022.