What is the Kentucky PTET rate?

Kentucky's PTET rate is 3.50% flat. KY DOR 2025 PTE Instructions (INSTR-41APTE 2025): HB 1 (2025) established individual income tax rate at 3.5% effective TY 2026; KY PTET imposes tax under KRS 141.020 per Form 740-PTET Instructions

Is the Kentucky owner credit refundable?

Kentucky's PTET owner credit is refundable. Each partner/member/shareholder claims credit on Form PTET-CR based on distributive share.

Does Kentucky PTET affect composite-return filing?

Stacks. See the composite-vs-PTET page for the full matrix.

Kentucky · KY

Kentucky Pass-Through Entity Tax (PTET)

Kentucky's PTET regime is one of the 37+ state workarounds to the federal SALT cap (IRC §164(b)(6)). The election is annual, statute-pinned below, and interacts with composite filing and §199A QBI in state-specific ways.

Statute: KRS Chapter 141 (Pass-Through Entity Tax election section); HB 5 (2023 Regular Session); imposes tax under KRS 141.020 on electing entity
State DOR portal: https://revenue.ky.gov/Business/Pass-Through-Entities/Pages/default.aspx
Election deadline: Annual election made by filing Form 740-PTET. Election may be made at any time during the taxable year or after the end of the taxable year. Once made, election is irrevocable and binding on all owners.
Election form: Form 740-PTET (Pass-Through Entity Tax Return); Form PTET-CR (member credit); Form PTET-P (payment voucher)
Entity-level rate: 3.50% — KY DOR 2025 PTE Instructions (INSTR-41APTE 2025): HB 1 (2025) established individual income tax rate at 3.5% effective TY 2026; KY PTET imposes tax under KRS 141.020 per Form 740-PTET Instructions
Eligible entities: s-corp, partnership, llc-as-s, llc-as-partnership
Owner credit: refundable — Each partner/member/shareholder claims credit on Form PTET-CR based on distributive share.
Composite interaction: stacks
§199A QBI base reduction: Yes — Reduces federal flow-through income (Notice 2020-75).
Last verified: 2026-05-12

Source: revenue.ky.gov/Forms/Form%20PTET%20Instructions.pdf + revenue.ky.gov/Business/Pass-Through-Entities/. KY rate is the lowest in the country and continuing to fall.

IRC §164(b)(6)Notice 2020-75 IRC §199A

Reference computation

For a Kentucky pass-through entity with $500,000 of qualified net income allocated to this state, at a 37% federal marginal bracket, the entity-level PTET and federal-deduction math is:

Kentucky — reference example

QBI allocation·KY rate= Entity-level tax

$500,000×4%=$17,500

KRS Chapter 141 (Pass-Through Entity Tax election section); HB 5 (2023 Regular Session); imposes tax under KRS 141.020 on electing entity

Entity tax·Federal bracket= Federal deduction (gross)

$17,500×37%=$6,475

At a 37% federal bracket, the entity-level deduction saves $6,475 in federal tax. Net of §199A QBI offset (~20% × bracket × entity tax = $1,295), aggregate benefit is approximately $5,180.

IRS Notice 2020-75

Run the picker pre-filled for Kentucky

Election walkthrough

Verify eligibility. Kentucky accepts: s-corp, partnership, llc-as-s, llc-as-partnership.
Check the deadline. Annual election made by filing Form 740-PTET. Election may be made at any time during the taxable year or after the end of the taxable year. Once made, election is irrevocable and binding on all owners. [PLACEHOLDER: state DOR cite] — pin exact extension/due-date mechanics.
Compute the entity-level tax. Apply the 3.50% rate to qualified net income.
Pay and file. Use Form 740-PTET (Pass-Through Entity Tax Return); Form PTET-CR (member credit); Form PTET-P (payment voucher). Quarterly estimates may be required.
Owners claim the state credit. refundable credit on the personal state return.
Verify composite interaction. Composite interaction: stacks. See composite vs PTET.
Run the federal §199A QBI math. PTET reduces the QBI base proportionally; net the federal SALT-arbitrage against the §199A offset.

Kentucky PTET — common questions

Annual deadline reminder

State PTET law revises annually. Kentucky's data was last verified on 2026-05-12. Re-confirm with the state DOR primary source before electing or filing. Last full-site review: 2026-05-12.

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Reference computation

For a Kentucky pass-through entity with $500,000 of qualified net income allocated to this state, at a 37% federal marginal bracket, the entity-level PTET and federal-deduction math is:

Entity tax·Federal bracket= Federal deduction (gross)

$17,500×37%=$6,475

At a 37% federal bracket, the entity-level deduction saves $6,475 in federal tax. Net of §199A QBI offset (~20% × bracket × entity tax = $1,295), aggregate benefit is approximately $5,180.

IRS Notice 2020-75

Election walkthrough

Verify eligibility. Kentucky accepts: s-corp, partnership, llc-as-s, llc-as-partnership.

Check the deadline. Annual election made by filing Form 740-PTET. Election may be made at any time during the taxable year or after the end of the taxable year. Once made, election is irrevocable and binding on all owners. [PLACEHOLDER: state DOR cite] — pin exact extension/due-date mechanics.

Compute the entity-level tax. Apply the 3.50% rate to qualified net income.

Pay and file. Use Form 740-PTET (Pass-Through Entity Tax Return); Form PTET-CR (member credit); Form PTET-P (payment voucher). Quarterly estimates may be required.

Owners claim the state credit. refundable credit on the personal state return.

Verify composite interaction. Composite interaction: stacks. See composite vs PTET.

Run the federal §199A QBI math. PTET reduces the QBI base proportionally; net the federal SALT-arbitrage against the §199A offset.

Kentucky PTET — common questions