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Kentucky Small Business Tax Credit Program

By Emma Kuhl, CPA, and Zach Mattingly, CPA

In September, Kentucky Governor Andy Beshear urged Kentucky small businesses to take advantage of the Kentucky Small Business Tax Credit Program (KSBTC), a tax credit many small businesses may not know they are eligible for.

The program offers small businesses a tax credit ranging between $3,500 – $25,000 per year. For the purposes of this program, a small business is defined as a business having fifty or fewer full-time employees (employees working more than thirty-five hours per week).

To qualify, a small business must have created and filled at least one new full-time job position in the past year and purchased at least $5,000 in qualified equipment or technology within the past 24 months.

The KSBTC is available by application to the Kentucky Economic Development Finance Authority (KEDFA).

The first requirement of the credit is creating and filling an eligible job position. An eligible position is one in which the employee works more than 35 hours per week and has been filled for at least twelve months.

The employee must be paid at least 150 percent of the federal minimum wage, which currently calculates as $10.88 per hour. The employee must also be subject to Kentucky employment taxation, meaning that the employee may not live out of the state of Kentucky.

If the employee hired to fill the new position leaves before the twelve-month period, the business may still be eligible for the credit if a replacement is employed within 45 days of the former employee’s last day.

The second requirement is that the business must have invested more than $5,000 in qualified equipment or technology within the prior twenty-four-month period.

It must be tangible property with an expected useful life of greater than one year. Examples of qualified property include computers, equipment, furniture, and vehicles. Real property, including buildings, are not considered qualified property.

If a small business meets all the requirements for the credit, they are eligible to apply with KEDFA. Businesses may submit multiple qualified positions on one application if they all meet the requirements above.

If the KEDFA approves the application, they will confirm the credit amount. The credit is equal to the lesser of $3,500 for each eligible position OR the total dollar amount invested in qualified equipment.

If the small business has multiple qualified positions on the application, the credit is limited to a total of $25,000 per calendar year. Be aware that there is a one percent application fee for the amount of credit received. The credit is nonrefundable, and any excess credits can be carried forward up to five years.

The Kentucky Small Business Tax Credit Program can be a useful tool for small businesses looking to grow. For more information about the program and to see if your business may qualify, visit https://ced.ky.gov/Entrepreneurship/KSBTC.

If you have any questions, or would like assistance applying for the Kentucky Small Business Tax Credit, please reach out to a Blue & Co. Advisor.

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