Employer's Unemployment Tax Credit
The Employer's Unemployment tax credit is a nonrefundable income tax credit that can be applied against income taxes imposed by KRS 141.020 (individual income tax), or KRS 141.040 (corporation income tax) and the limited liability entity tax (LLET) imposed by KRS 141.0401 with the ordering of credits as provided in KRS 141.0205.
A taxpayer must hire a Kentucky resident who has been classified as unemployed for at least 60 days. The Kentucky resident must remain employed for 180 consecutive days during the tax year. For each qualified person hired, a one-time nonrefundable credit of $100 may be claimed.
Please contact the Office of Unemployment Insurance in the Education and Labor Cabinet for details regarding the application process.
Who Can Claim the Credit?
The credit is passed through to the partners, members, or shareholders of a pass-through entity that are the partners, members, or shareholders at the time of the application and subsequent approval of the credit. The income is reported on the Kentucky Schedule K-1 and any credit that is passed through to the partners, members, or shareholders may be used against individual income tax or corporate income tax and LLET.
A sole proprietor reporting business income on Schedule C (federal Form 1040) may claim the credit. An individual may also claim the credit if it is passed through to them from a partnership, LLC, or S-Corporation on a Kentucky Schedule K-1.
An individual may also claim the credit on their individual income tax return. For a husband and a wife filing separate returns or filing separately on a joint return, the credit may be taken by either or divided equally. If the application lists only one of the spouse's names, the listed spouse is entitled to claim the full credit.
A corporation may apply the tax credit against income tax and LLET on its Kentucky Corporation Income Tax and LLET Return. A corporation may also claim the credit if it is passed through to them from a pass-through entity on a Kentucky Schedule K-1.