Find out which employees you have to withhold KY taxes for and which don’t have to file
Here’s another great question about state taxes from one of our readers. This time, it’s about Kentucky and Tennessee:
We are a construction company based in Kentucky. We have jobs that are in Kentucky and Tennessee. When a person lives in Tennessee but works in Kentucky, do you have to withhold Kentucky taxes? When a person lives in Tennessee and our job is in Tennessee, do they pay Kentucky taxes?
State taxes seem a lot more complicated than they actually are. Once you know a few simple rules all you have to do is break a situation down into its component parts.
First of all, we are dealing with two states here: Kentucky and Tennessee.
Tennessee
Thankfully, Tennessee doesn’t have an income tax, so we can leave it aside (to be specific, TN does tax interest and dividends, but let’s assume that doesn’t affect anyone in our scenario).
Kentucky
So now all we have to worry about is Kentucky. There are two categories of people who have to pay KY taxes:
- KY residents (basically those who live in KY), and
- nonresidents who have income from KY sources
If you live in Kentucky and are a KY resident, the situation is pretty unambiguous. You have to file a KY return and pay taxes on all of your income, no matter where it was earned.
If you are a resident of a different state, such as Tennessee, but earn money in Kentucky, then you too need to file a Kentucky return, but you only need to pay taxes on the money you physically earned in KY.
The location of a company’s headquarters has no bearing on what states you need to file taxes in, only your physical location while performing the work.
Our scenario
So, to take the first case in our scenario, the person who lives in Tennessee but works in Kentucky does have to pay Kentucky taxes. He’s considered a nonresident, so he only has to pay KY taxes on the money that he earns while physically in KY. In this case, KY taxes should be withheld from his pay.
In the second case, where the person both lives and works in Tennessee, he shouldn’t have to pay Kentucky taxes at all, even though the company is based there. The only way he would have to pay KY taxes is if he physically goes to KY and does work. If he frequently goes back and forth between the two states, it makes sense to withhold KY taxes. But if not, if all his work is done in TN, then there is no reason to withhold KY taxes.
So there you have it. States taxes basically come down to two factors: where you are a resident and where you work. There’s no denying that they are very complicated, though. To make the process as simple as possible, why don’t you try filing your state taxes with RapidTax?
Photo via John Athayde on Flickr.
I lived in Tn., paid rent, electric, etc. Worked in Tn. I drove to Ky on weekends(stated with family members) and played the organ for a church each Sunday. They paid me and also with held taxes for Ky. So spent maybe 104 days in Ky during the year. I have now moved back to Ky and work here. State says I owe back taxes, interest, etc. for 2 yrs in Tn. They want about $7, 000 NOW! Someone said something about 154 days in Ky???
I am retired and living in Kentucky but my earned income was in Tennessee where there is no state tax. Do I have to file a state tax form in Kentucky? What is the maximum you can receive before having to file a state tax?
My son goes to college in KY and works. Does he need to file NY state taxes as well as KY nonresident taxes. He didn’t earn any income in NY
I think you have stated it several times, but I want to be 100% clear. I have a physical address and pay rent in TN, I work in TN, but my family lives in KY. Do I have to pay KY state taxes?
Chris,
Typically you file state taxes to your resident state or home state and any other state that you earned income in. If you did not live or earn income in KY, then you do not have to file a KY state return.
Does anyone know the rules for an employee living in KY and working on a job in TN? Will the TN income need to be reported on a KY return since TN has no income tax? Or does the person simply pay no income tax on TN work performed?
Your resident state taxes all of your income that you have earned throughout the year, regardless of where you have earned it. For your non-resident state, if there is no income tax, you are exempt from paying taxes on your income earned there.