Kentucky tax treatment of Unemployment Benefits

[roriggs]

Anyone here in the Bluegrass State?  Does anyone know whether Kentucky is excluding unemployment benefits per American Recovery Act or should we add back the UI to Kentucky taxable income?

[ritastone001]

I am adding it back in on Schedule M. Nothing I am reading says that any part of unemployment will not be taxed.  Will fix things later if needed. I am explaining this to clients and it is their decision to go ahead and file or wait longer to see if Ky will follow Federal.

[roriggs]

Thanks for your response.  I agree that that is what we need to do.  Just making sure no one had heard anything otherwise.  

[jccuk1]

That is what we have been doing and checking off the box in the informational diagnostics, but for some very odd reason, after last nights updates, Lacerte has made this critical diagnostic. 

In truth, Lacerte should have automatically had this go to a Schedule M adjustment as Kentucky has never hinted that they would follow the fed's in exempting unemployment. 

It's funny that all of the other tax programs have put this as a Schedule M adjustment but not Lacerte, who will tell you that they follow the instructions of the state.  As of this moment, Kentucky has not changed its rule.  So leave this as an informational diagnostic to have us do this instead of a critical to allow us to e-file since we made the change to Kentucky to report it properly.

[warrenite41]

I just read that Kentucky and Colorado and 11 other states will be taxing all unemployment benefits. There is a scheduled ProSeries update to Kentucky April 1.

[BobKamman]

You probably read this CNBC story, or maybe another source that picked it up. It relies on H&R Block, need I say more?  For Arizona, Block says we are not taxing unemployment because the forms and instructions haven't been changed yet.  That's going to be news for the Republican legislature, which has not yet decided whether to conform to the Democratic Congress.  

https://www.cnbc.com/2021/03/30/10200-unemployment-tax-break-american-rescue-plan-states-giving-the-...

[jctax1]

I read in the courier-journal that Kentucky wasn't going to exclude it. Why can't Lacerte get an answer and get the program right. It should be adding it back if it has to be taxed. 

[jccuk1]

That is absolutely correct. Kentucky has always taxed unemployment and Lacerte should be treating it that way until the law is changed. Had 3 returns today that rejected because of the critical diagnostic even though I made the correct change to include the unemployment to Kentucky. 

Lacerte will tell you they don’t change the program until they get instructions to do so, but Kentucky never changed their laws or instructions and they have made no intentions known that they would follow federal, yet Lacerte has changed the way they handle it. Go figure!

[ed_j]

Pro Series updated the $10,200 of excluded unemployment benefits to be taxable, but NO communication from Pro Series.  Here is what KY says :

FRANKFORT, Ky. (April 1, 2021) -- 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.​