On the 58th day of the 60 day legislative session, the Republican majority unveiled the most significant change to the state’s tax code in more than a decade and the Senate passed it before the bill was even made public.
Here’s what you need to know about how the bill affects your taxes:
Your income tax will go down
The bill sets a flat rate for income taxes at 5 percent. While Kentucky currently has six tax brackets, four of the six only apply to people who make less than $8,000 per year. People who make $8,001 to $75,000 currently pay 5.8 percent and people who make more than $75,001 pay 6 percent. Now everyone will pay 5 percent.
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Your pension might get taxed
Right now people who bring in a pension less than $41,110 a year don’t have to pay a tax on their pensions. The tax bill lowers the exemption so that anyone with a pension more than $31,110 will be taxed. The average pension in the Kentucky Teachers’ Retirement System is $37,000 a year.
You’ll have to pay for services
The big change is a new sales tax on services that have never before been taxed. This has long been a recommendation of tax reform experts who say it captures the fastest-growing parts of the economy. The biggest piece of that will be a tax every time you take your car to the mechanic. Some budget experts have estimated it could bring the state about $288 million a year.
Other big services included are taking your small animals, like cats and dogs to the vet or getting them groomed. This does not include vet services for horses and cattle.
The new services include those used by rich people, such as landscaping services, golf courses, country clubs, limousines and non-medical diet and weight reduction centers.
Then there are things used by everyone else, such as bowling lanes, dry cleaning, and fitness and recreation centers. It’s not clear if this includes non-profit gyms, like the YMCA. The biggest mystery is “personal care services,” which appear to be tanning salons.
Also included are janitorial services, industrial laundry services, and linen supply companies.
The new tax also extends to overnight trailer campgrounds, and admissions to movies, plays, concerts and sports events. However, the language of the bill excludes race tracks, historic sites and county fairs.
You’ll pay more for cigarettes
Taking up a House proposal, lawmakers agreed to add to one of the country’s lowest cigarette taxes Currently, the tax is .60 cents a pack. The new tax would raise it .50 cents, up to $1.10 a pack. Electronic cigarettes will be taxed at 15 percent.
You’ll lose tax deductions
The reform package includes cutting some typical tax deductions, including medical expenses, medical insurance, paid taxes and investment income.
You lose a tax credit
If you owe money to the state when you finish filing your taxes, you currently get a $10 credit. The tax bill takes away that credit, so you’ll have to pay the full amount. The House of Representatives estimated that eliminating the $10 individual income tax credit will raise $55 million a year for the state.
Businesses get a break
Along with a flat rate for the individual income tax, the corporate income tax will be changed to a flat rate of 5 percent. There are currently three corporate income tax brackets: 4 percent for profits below $50,000, 5 percent for profits between $50,000 and $100,000 and 6 percent for profits above $100,000.