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COVID-19 Tax Relief: Frequently Asked Questions

​The following answers address specific questions asked by CPAs and other tax preparers with regard to the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) passed by Congress on March 27, 2020.

No. The Kentucky General Assembly would have to adopt this amendment to the Internal Revenue Code by amending KRS Chapter 141 to enact the particular provision at issue before Kentucky taxpayers could carryback an NOL in calculating their Kentucky income taxes. Without adopting this provision, Kentucky taxpayers will have to make adjustments on their Kentucky income tax return to account for federal/state differences.

No. The Kentucky General Assembly would have to adopt this amendment to the Internal Revenue Code by amending KRS Chapter 141 to enact the particular provision at issue before Kentucky taxpayers could utilize NOLs in excess of the 80% limitation in calculating their Kentucky income taxes. Without adopting this provision, Kentucky taxpayers will have to make adjustments on their Kentucky income tax return to account for federal/state differences.

No. The Kentucky General Assembly would have to adopt this amendment to the Internal Revenue Code by amending KRS Chapter 141 to enact the particular provision at issue before Kentucky taxpayers could increase their available deduction in calculating their Kentucky income taxes. Without adopting this provision, Kentucky taxpayers will have to make adjustments on their Kentucky income tax return to account for federal/state differences.

No. The Kentucky General Assembly would have to adopt this amendment to the Internal Revenue Code by amending KRS Chapter 141 to enact the particular provision at issue before Kentucky taxpayers could increase their business interest expense deduction in calculating their Kentucky income taxes. Without adopting this provision, Kentucky taxpayers will have to make adjustments on their Kentucky income tax return to account for federal/state differences.

No. The Kentucky General Assembly would have to adopt this amendment to the Internal Revenue Code by amending KRS Chapter 141 to enact the particular provision at issue before Kentucky taxpayers could recognize the charitable contribution deduction allowed under IRC Section 62 in calculating their Kentucky income taxes. Without adopting this provision, Kentucky taxpayers will have to make adjustments on their Kentucky income tax return to account for federal/state differences.

No. The Kentucky General Assembly would have to adopt this amendment to the Internal Revenue Code by amending KRS Chapter 141 to enact the particular provision at issue before Kentucky taxpayers could utilize the changes to the federal business loss limitation rules in calculating their Kentucky income taxes. Without adopting this provision, Kentucky taxpayers will have to make adjustments on their Kentucky income tax return to account for federal/state differences.

Yes. Loans forgiven under the CARES Act Paycheck Protection Program that are excluded from gross income for federal income tax purposes and also for Kentucky income tax purposes. 

​Yes, coronavirus-related distributions that are included ratably in gross income over three years for federal income tax purposes should also be included in gross income ratably over three years for Kentucky income tax purposes.  

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​The following answers address common questions asked with regard to information previously published on the DOR website regarding tax filing and payment requirements and statutory limitation periods in response to COVID-19.

Yes.  For taxpayers:  If the statutory period limiting the time for claiming a refund expired on or after April 1, 2020, and before July 15, 2020, then the expiration is postponed until July 15, 2020.

For DOR: If the statutory period for auditing and making an additional assessment expires  on or after April 6, 2020, and before July 15, 2020, the Department will have an additional 30 days after the expiration date to audit and assess additional taxes.

Regarding returns due on July 15, 2020:  The statutory period for claiming a refund will begin on July 15, 2020, including for a claim for refund on a return filed prior to that date. This means the 4-year statute of limitations period begins July 15, 2020, and ends July 15, 2024, and the 6 year period ends July 15, 2026.

​Yes.  For taxpayers filing annual returns on the basis of the calendar year, or on the basis of a fiscal year where the annual return is due during the period on or after April 1, 2020, and before July 15, 2020 (in either case, originally or pursuant to a valid extension granted), the interest on overpayments under KRS 141.044, KRS 141.207, and KRS 141.235(3) will begin to accrue ninety (90) days after July 15, 2020.  The timing for the accrual of interest on overpayments by fiscal year taxpayers whose annual returns are due outside the period on or after April 1, 2020, and before July 15, 2020, is not changed. 

​No. The filing and payment deadline for Kentucky Form 725 remains April 15, 2021. The May 17, 2021 extended date for Kentucky only applies to individual income tax returns and individual income tax return payments otherwise due April 15, 2021. It does not apply to the limited liability entity tax. A SMLLC that needs additional time to complete and file its Kentucky Form 725 should file for a 6-month extension using Form 720EXT or Form 740EXT by April 15, 2021.  

​No. The filing and payment deadline for Kentucky Form 741 remains April 15, 2021. The May 17, 2021 extended date for Kentucky only applies to individual income tax returns and individual income tax return payments otherwise due April 15, 2021. It does not apply to the fiduciary income tax. A fiduciary that needs additional time to complete and file its Kentucky Form 741 should file for a 6-month extension using Form 740EXT by April 15, 2021, or should attach a copy of a valid federal extension to its return. 

The following answers address common questions asked with regard to information previously published on the DOR website regarding individual income tax in response to COVID-19.

No. All unemployment compensation earned as a Kentucky resident is subject to Kentucky income tax. For Kentucky residents, any amount excluded up to the $10,200 on a taxpayer's federal income tax return is required to be added back on the Kentucky individual income tax return on Schedule M, Line 5 as an "Other Addition".  For part-year Kentucky residents, the amount should be included on the Form 740-NP, Section B, Column B, line 13 as unemployment compensation. The Kentucky General Assembly would have to adopt this amendment to the Internal Revenue Code by amending KRS Chapter 141 to enact the particular provision at issue before Kentucky taxpayers could take the same exclusion on their Kentucky income tax returns for 2020 and 2021, and for fiscal taxable years ending on or after March 27, 2020, but before taxable years beginning January 1, 2022.

The following answers address common questions asked with regard to telecommuting employees in response to COVID-19.

​​The Kentucky Department of Revenue does not administer license, occupational, or other excise taxes imposed by cities, counties, and other local jurisdictions in this state.  For Kentucky state income tax purposes, employers employing Kentucky residents, and/or nonresidents who reside in states with which Kentucky has a reciprocal agreement, will not need to change their current withholding practices during the period when these employees are working from home.  Requirements for withholding of tax in either case remain unchanged by restrictions related to the COVID-19 public health emergency. 

​​The Kentucky Department of Revenue does not administer license, occupational, or other excise taxes imposed by cities, counties, and other local jurisdictions in this state.  For Kentucky state income tax purposes, employers employing Kentucky residents and/or nonresidents who reside in states with which Kentucky has a reciprocal agreement will not need to change their current withholding practices during the period when these employees are working from home.  These employees’ Kentucky state income tax obligations remain unchanged by restrictions related to the COVID-19 public health emergency.

​​The Kentucky Department of Revenue (DOR) does not administer license, occupational, or other excise taxes imposed by cities, counties, and other local jurisdictions in this state. DOR will continue reviewing Kentucky state income tax nexus determinations on a case-by-case basis.  

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