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.
- 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.
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:
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.
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
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.