Update Kentucky 2025 Individual Income Tax Model #7097
Description
Summary
Update Kentucky income tax model for tax year 2025. This includes adding 2025 references (with page numbers) to all parameters, updating values where changed, and adding 2025 integration tests.
Reference Documents
- 2025 Kentucky Individual Income Tax Booklet (Form 740 Instructions)
- 2025 Schedule ITC (Individual Tax Credit Schedule)
- 2025 Form 8863-K (Education Tuition Tax Credit)
- 2025 Schedule P (Pension Income Exclusion)
- Kentucky DOR - 2025 Standard Deduction Announcement
Key 2025 Values
| Parameter | 2024 Value | 2025 Value | Status |
|---|---|---|---|
| Tax rate | 4% | 4% | ✅ Already implemented |
| Standard deduction | $3,160 | $3,270 | ✅ Already implemented |
| Aged personal credit | $40 | $40 | ✅ No change |
| Blind personal credit | $40 | $40 | ✅ No change |
| Military personal credit | $20 | $20 | ✅ No change |
| Tuition tax credit rate | 25% | 25% | ✅ No change |
| Dependent care credit rate | 20% | 20% | ✅ No change |
| Pension income exclusion | $31,110 | $31,110 | ✅ No change |
Family Size Tax Credit Thresholds (2025)
| Family Size | 2025 Threshold |
|---|---|
| 1 person | $15,650 |
| 2 people | $21,150 |
| 3 people | $26,650 |
| 4+ people | $32,150 |
The credit phases out at 133% of these thresholds.
Tasks
1. Add 2025 References to Parameters
Add 2025 Form 740/Schedule ITC references with page numbers to all Kentucky income tax parameters, even if values haven't changed:
-
rate.yaml- Add reference to 2025 Form 740 instructions (page 2) -
deductions/standard.yaml- Add reference to 2025 Form 740 instructions (page 2) -
credits/family_size/rate.yaml- Add reference to 2025 Schedule ITC (page 2) -
credits/family_size/family_size_cap.yaml- Add reference to 2025 Schedule ITC (page 2) -
credits/personal/amount/aged.yaml- Add reference to 2025 Schedule ITC Section B (page 2) -
credits/personal/amount/blind.yaml- Add reference to 2025 Schedule ITC Section B (page 2) -
credits/personal/amount/military.yaml- Add reference to 2025 Schedule ITC Section B (page 2) -
credits/tuition_tax/rate.yaml- Add reference to 2025 Form 8863-K (page 1-2) -
credits/dependent_care_service/match.yaml- Add reference to 2025 Form 740 instructions (page 9) -
exclusions/pension_income/threshold.yaml- Add reference to 2025 Schedule P (page 1)
2. Verify/Update Family Size Tax Credit Thresholds
The family size tax credit uses federal poverty guidelines. Verify the 2025 thresholds are correctly computed:
- Check if
ky_modified_agi.pycorrectly references the poverty thresholds - Verify the phase-out calculation at 133% of poverty
3. Add 2025 Integration Tests
Create ky_2025_integration.yaml with tests for:
- Single filer with standard deduction
- MFJ filer with itemized deductions
- Family size tax credit calculation (various family sizes)
- Personal tax credits (aged, blind, military)
- Tuition tax credit
- Dependent care credit
- Pension income exclusion
4. New Programs Assessment
Qualified Broadband Investment Tax Credit (2025+)
- Available for taxable years 2025-2028
- Nonrefundable, nontransferable
- Requires pre-approval from KY DOR by Dec 31
- Statewide cap: $5 million/year
- Assessment: Not easily modelable - requires pre-approval process and we don't have broadband investment variables
Pass-Through Entity Tax Credit
- Refundable credit for individual owners of pass-through entities
- Claimed on Form 740, line 31(g)
- Assessment: May be modelable if we have pass-through entity tax variables
Notes
- Kentucky rate is scheduled to decrease to 3.5% in 2026 (already implemented)
- Federal conformity updated to December 31, 2024
- Education Opportunity Account (EOA) credit became obsolete after 2021
Related
- Similar to Kansas 2025 update: Update Kansas 2025 Individual Income Tax Model #7064