Do you remember back to your childhood when you were about to receive a vaccination in your arm and the well-meaning nurse tried to comfort you by saying “If you don’t think about it, it won’t hurt”? And then it hurts anyway. As adults, many of us have a similar attitude when it comes to paying our taxes. Although we may try our best to only ever think about our income taxes once a year as April 15th approaches, we know darned well that the Kentucky Department of Revenue (KYDOR) and the United States Internal Revenue Service (IRS) pay much closer attention than we do. That’s understandable because both the State and Feds expect to receive regular tax payments from us based on how much income we earned during the year.
Those of us who are wage and salary earners can get away with not thinking about tax payments throughout the year because our state and federal taxes are taken out of our paychecks by our employers before we even receive them. This “pay-as-you-go” withholding process takes place regardless of whether we get paid every week, every two weeks, or every month. And when we prepare our tax returns at the end of the year, we report our taxable income and figure out our correct tax liability for the year. When we compare that tax liability to the total amount that has been withheld by our employers during the year, we find out immediately whether we will receive a refund or whether we owe further amounts to the IRS or the KYDOR. In other words, we get a refund if our employer withheld too much for tax, and we have a balance due if the employer withheld too little.
But not everyone in the workforce can enjoy the luxury of having their regular tax payments taken care of on their behalf. What about Allison who works for herself as a seamstress? She doesn’t have a company payroll department to issue paychecks for her and withhold taxes on her income. She has to take on this responsibility herself, just like other types of taxpayers, such as small business owners, independent contractors, and freelancers who do not normally have taxes withheld from the payments they receive for their work. This also applies to plenty of other folks because taxes are usually not withheld for taxpayers who receive other types of income, such as rental income, dividend income, capital gains, interest income, and even income from cryptocurrency. The only way that taxes can be paid during the course of the year on the types of income we have just mentioned is if the taxpayer takes on the responsibility.
Coming back to the hard-working Allison, she can look at her situation as if she received a single paycheck at the end of every quarter of the year instead of a series of payments from her individual customers. At the end of each quarter, she estimates the amount of taxes she owes for that quarter and sends a check to the IRS and to the KYDOR, and possibly also to the tax agency of any other state where she earned her untaxed income. When Allison completes her tax return at the end of the year, she will find out just like the rest of us whether she owes more tax or if she’s due for a refund.
Many individual states require the payment of estimated taxes by people like Allison, although the rules tend to differ slightly from one state to the next. Let’s now look at the rules that apply to Allison for her work in Kentucky.
Kentucky Estimated Tax Rules for Residents and Nonresidents
Regardless of whether they are a Kentucky resident for any part of the year, taxpayers who are required to file a Kentucky tax return and expect to owe more than $500 (after taking into consideration any taxes already withheld and allowable credits) must make estimated tax payments.
An exception applies if the taxpayer expects their withholding and refundable credits to be less than the smaller of:
- 90% of the tax to be shown on their tax return for the current year; or
- 100% of the tax shown on their tax return for the prior year (provided that the prior year tax return covered all 12 months).
To calculate the estimated tax, taxpayers should use the worksheet found in
Form 740-ES Instructions – Kentucky Estimated Tax Voucher Instructions.
Taxpayers can choose to pay the estimated tax in full at the time they would normally make their first estimated tax payment of the year, or in equal installments, on or before the following due dates, unless the date falls on a weekend or holiday. In that case, the payment will be due on the next business day:
- April 15th;
- June 15th;
- September 15th; and
- January 15th of the following year.
The above due dates are different for taxpayers who use a fiscal year rather than a calendar year. In those cases, the first payment is due 3 months and 15 days after the beginning of the taxpayer’s fiscal year, with the next payment due on the 15th day of the 6th month of the taxpayer’s fiscal year, and so on.
Special Rules for Fishermen and Farmers
The rules are slightly different for taxpayers who earn at least two-thirds of their 2024 gross income from farming or fishing. Although these taxpayers can make quarterly payments like everyone else, instead they may choose to:
- Pay their 2024 estimated tax in full by January 15, 2025; or
- File their 2024 income tax return on or before March 3, 2025, and pay the total tax due. No estimated tax payments are needed for 2024 if the taxpayer chooses this option.
Penalties
It is important to note that penalties and interest may be charged to taxpayers who do not meet the exception above and fail to make their required estimated payments. The same applies if payments are underpaid or paid late in any quarter, even if the taxpayer is due to receive a refund when they file their income tax return.
Payment Methods
Payments may be made by any of the following methods:
- By mail with a check or money order after printing a Kentucky Estimated Tax Voucher, Form 740-ES.
- Electronically by online transfers directly from a checking or savings account at KYDOR’s Electronic Payment Application site.
- By using Form 8879-K to authorize the KYDOR to debit all four of the taxpayer’s installments on the dates due. This option must be initiated at the time of the filing and is only available for electronic filers.
For more information, refer to the
instructions for Form 740-ES Kentucky Estimated Tax Voucher.