Kentucky State Tax Credits

More ways to save your hard-earned money from the tax man!

Kentucky has some State Tax Credits for you....

Thank you so much for checking our resource out here for your state and congratulations for taking a proactive step to paying less in taxes. For your state, we have identified the tax credits that are currently being offered to help you pay less in state taxes.

We hope this resource is helpful to you, and if there is something you feel we have missed, please let us know!

It would be completely arrogant of us to think that we know all things and if we missed something we want to know so we can vet that and help you and our other friends in the entrepreneurial community pay less in taxes! And if you found this helpful, you should check out our DIY resources inside of our Tax Savings Communities (found at www.MakeTaxesFair.com/Our-Communities).

We're also ready to help you if you want to skip the line of the DIY process and get help directly from us. To learn more about how we help our clients check out www.MakeTaxesFair.com/Get-My-Roadmap

 
Kentucky

Kentucky Small Business Tax Credit (KSBTC)

Overview:
The Kentucky Small Business Tax Credit offers non-refundable state income tax credits of $3,500 to $25,000 to eligible small businesses that create full-time jobs and invest in qualifying equipment or technology. It supports business growth by rewarding job creation and capital investment.

Who It’s For:
Kentucky-based for-profit businesses with 50 or fewer full-time employees looking to expand their workforce and invest in operational technology or equipment.

Four Key Highlights:

  1. Credit Based on Job Creation & Investment

    • Receive $3,500 per eligible full-time job and a matching credit for equipment/technology investment—capped at $25,000 per year.

  2. Strict Eligibility Requirements

    • Must create at least one full-time job (150% of federal minimum wage) filled for 12 consecutive months, plus a $5,000+ investment in tangible business-use assets.

  3. Qualifying Assets Must Be Tangible

    • Only equipment/technology with a useful life of one year or more qualifies (e.g., computers, vehicles, office furniture)—real estate and consumables do not.

  4. Carryforward Available, Not Refundable

    • Credits are non-refundable but can be carried forward. Applications must be submitted within 24 months of meeting the earliest program requirement.

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Kentucky Employer GED Incentive Tax Credit

Overview:
This non-refundable tax credit rewards Kentucky employers who support their employees in obtaining a GED by giving them paid time off to study. The credit covers 50% of paid study time, up to $1,250 per employee.

Who It’s For:
Kentucky-based employers—including individuals, corporations, and pass-through entities—who release employees from work to prepare for and earn a GED during the tax year.

Four Key Highlights:

  1. Credit Based on Paid Study Time

    • Calculated as 50% of the employee’s paid release time for GED prep, multiplied by their hourly wage, up to $1,250 per employee.

  2. Must Be Claimed in the Year of Completion

    • The credit must be used in the tax year when the GED learning contract is completed—no carryforward or carryback allowed.

  3. Applies Across Entity Types

    • Available to corporations, sole proprietors, and pass-through entities (with credit passed to partners/shareholders via Schedule K-1).

  4. Documentation Is Key

    • Employers must retain clear records of release hours and wages to substantiate the tax credit claim.

 

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Kentucky Employer’s Unemployment Tax Credit

Overview:
The Kentucky Employer’s Unemployment Tax Credit provides a one-time, non-refundable $100 tax credit to businesses that hire qualified unemployed Kentucky residents and retain them for at least 180 consecutive days.

Who It’s For:
Kentucky-based employers—including individuals, corporations, and pass-through entities—who hire residents who have been unemployed for 60+ days and keep them on staff for at least 6 months.

Four Key Highlights:

  1. $100 Per Qualified New Hire

    • The credit is available once per eligible employee and is tied to job retention of 180 consecutive days.

  2. Strict Eligibility Requirements

    • The hire must be a Kentucky resident who was unemployed for at least 60 days before hiring.

  3. Non-Refundable, No Carryforward

    • This credit can only be used to offset current-year tax liability and cannot be carried forward or backward.

  4. Documentation Is Critical

    • Employers must keep proof of the hire’s prior unemployment, date of hire, and uninterrupted 180-day employment to support their claim.

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Kentucky Investment Fund Act Tax Credit

Overview:
The Kentucky Investment Fund Act Tax Credit incentivizes investments in approved Kentucky-based venture funds that support small businesses and job creation. Investors can receive a 25% income tax credit for qualified cash investments, with unused credits carried forward for up to 15 years.

Who It’s For:
Individual investors, corporations, and pass-through entities investing in qualified Kentucky investment funds supporting early-stage business development.

Four Key Highlights:

  1. 25% Credit for Qualified Investments

    • Investors receive a 25% income tax credit on approved investments made into eligible Kentucky-based investment funds.

  2. Broad Applicability Across Tax Types

    • Credit applies to individual, corporate, LLET, insurance, and financial institution taxes, offering flexibility in use.

  3. Non-Refundable but Long Carryforward

    • The credit isn’t refundable but can be carried forward for up to 15 years if unused in the original tax year.

  4. Restrictions for Pass-Through Entities

    • Pass-through entities must distribute credits to partners or shareholders upon approval and cannot retain them for later allocation.

 

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Kentucky Angel Investment Act Tax Credit

Overview:
The Kentucky Angel Investment Act Tax Credit rewards qualified investors who fund early-stage Kentucky small businesses with high-growth potential. Investors can receive a 25%–40% income tax credit based on the business's location, helping drive innovation and job creation across the state.

Who It’s For:
Accredited individual investors seeking equity opportunities in Kentucky-based startups and small businesses certified by the Kentucky Economic Development Finance Authority (KEDFA).

Four Key Highlights:

  1. Up to 40% Tax Credit for Investors

    • Investors receive a 40% credit for investments in enhanced incentive counties and 25% in non-enhanced counties, with a $1 million max per business.

  2. Strict Eligibility & Pre-Approval Required

    • Both investors and businesses must be certified by KEDFA before investment, and funds must be transferred within 80 days of approval or by year-end.

  3. Qualified Investments Only

    • Investments must be at least $10,000 in cash and take the form of equity, convertible debt, or SAFE agreements—approved in advance by KEDFA.

  4. 5-Year Compliance for Businesses

    • To avoid credit recapture, recipient businesses must remain compliant for five years, including ongoing operations in Kentucky and reporting to KEDFA.

 

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Kentucky Endow Kentucky Tax Credit

Overview:
The Endow Kentucky Tax Credit incentivizes charitable giving by offering a 20% non-refundable tax credit to individuals and businesses that contribute to permanent endowment funds at qualified community foundations in Kentucky. The credit encourages long-term philanthropy while providing substantial state tax benefits.

Who It’s For:
Individuals, corporations, and pass-through entities in Kentucky who want to support local causes through permanent endowment gifts and reduce their state income or LLET tax liability.

Four Key Highlights:

  1. 20% Tax Credit on Eligible Donations

    • Taxpayers can receive a credit equal to 20% of their verified gift, up to $10,000 per year.

  2. Tight Annual Cap and Application Window

    • Only $1 million in total credits are available statewide each fiscal year; applications must be submitted between July 1 and July 7.

  3. Strict Documentation Deadlines

    • After receiving preliminary approval, proof of the donation must be submitted within 10 days or the credit will be denied.

  4. 5-Year Carry-Forward, No Refund or Transfer

    • The credit is non-refundable and non-transferable but can be carried forward for up to 5 years if not fully used in the initial tax year.

 

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Kentucky Inventory Tax Credit

Overview:
The Kentucky Inventory Tax Credit allows individuals and businesses to claim a non-refundable income tax credit for ad valorem (tangible personal property) taxes paid on inventory. As of 2025, the credit equals 100% of the taxes paid, offering a full offset of eligible inventory tax obligations if paid on time.

Who It’s For:
Kentucky-based individuals, corporations, and pass-through entities (LLCs, partnerships, S-corps) that pay ad valorem taxes on inventory to Kentucky taxing jurisdictions.

Four Key Highlights:

  1. 100% Credit as of 2025

    • The phase-in is complete; taxpayers can now claim the full amount of timely paid inventory tax as a credit.

  2. Strict Timeliness Requirement

    • Only taxes paid on or before December 31 of the assessment year qualify—late payments are ineligible.

  3. No Carryforward or Refund Option

    • This credit is non-transferable, non-refundable, and must be used in the tax year claimed.

  4. Credit Application Rules

    • Must be claimed after all other available credits and cannot reduce Limited Liability Entity Tax (LLET) below the $175 minimum.

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