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INSTRUCTIONS FOR 2011 KENTUCKY FORM 740-NP

42A740-NP(I)

NONRESIDENT OR PART-YEAR RESIDENT INCOME TAX RETURN

10-11

WHO MUST FILE FORM 740-NP—Form 740-NP must be used

Military Pay Exclusion—Effective for taxable years beginning

by full-year nonresidents who had income from Kentucky

on or after January 1, 2010, all military pay received by active

sources and by part-year residents who had income while a

duty members of the Armed Forces of the United States,

Kentucky resident or from Kentucky sources while a nonresi-

members of reserve components of the Armed Forces of the

dent. These persons must file Form 740-NP if (1) they had any

United States, and members of the National Guard will be

gross income from Kentucky sources and gross income from

exempt from Kentucky income tax. (KRS 141.010(10)(u))

all sources in excess of modified gross income for their family

size, or (2) Kentucky gross receipts from self-employment in

Soldiers will claim the exemption by excluding military pay

excess of modified gross income for their family size. See

when filing a Kentucky individual income tax return starting

Chart A on page 2.

with the 2010 return. Provided the military member has

no income other than military pay, he or she would not be

Individuals who are residents of Kentucky for the entire tax

required to file a Kentucky income tax return. The military

year must use Form 740 or Form 740-EZ. Persons who maintain

pay exemption applies to all Kentucky military members

a permanent residence in Kentucky (i.e., are domiciled in

regardless of where the member is stationed. Kentucky

Kentucky) are considered residents. Persons not domiciled

income tax should no longer be withheld from checks

in Kentucky but who live in Kentucky for more than 183 days

received for military pay, beginning January 1, 2010. If

during the tax year are also considered residents.

Kentucky income tax is incorrectly withheld from a soldier’s

military pay in 2010 and after, the Department of Revenue

Full-year nonresidents must report all income from Kentucky

will refund the tax withheld.

sources (including distributive share income, Schedule K-1),

from activities carried on in Kentucky or from the performance

Military Spouse—The Military Spouses Residency Relief

of services in Kentucky, and from property located in

Act (MSRRA) (Public Law 111-97) was signed into law on

Kentucky.

November 11, 2009. This new law is effective for taxable

year 2009. The MSRRA allows the same residency benefits

Persons moving into Kentucky must report income received

permitted to military personnel under the Servicemembers

from Kentucky sources prior to becoming residents and

Civil Relief Act (SCRA) to also apply to a military spouse’s

income received from all sources after becoming Kentucky

nonmilitary service income, under certain circumstances.

residents.

The MSRRA prohibits a spouse’s income from being

Residents moving out of Kentucky during the year must report

considered income earned in a tax jurisdiction if the spouse

income from all sources while a resident and from Kentucky

is not a resident or domiciliary of such jurisdiction when the

sources while a nonresident.

spouse is in that jurisdiction solely to be with a servicemember

serving under military orders.

Reciprocal States—Kentucky has reciprocal agreements with

specific states. These agreements provide for taxpayers to

Those military spouses who fall under this law should file

be taxed by their state of residence, and not the state where

Form 740-NP Kentucky Individual Income Tax Nonresident or

income is earned. Reciprocity does not apply to persons who

Part-Year Resident Return to request a refund of the Kentucky

live in Kentucky for more than 183 days during the tax year.

income tax withheld from his or her pay. The income would

The states and types of exemptions are as follows:

not be reported as taxable on the Kentucky income tax return.

To assist the department in identifying those returns, please

Illinois, West Virginia—wages and salaries

write across the top of the return MILITARY SPOUSE. Please

Indiana—wages, salaries and commissions

address any further questions to the Taxpayer Assistance

Section at (502) 564-4581.

Michigan, Wisconsin—income from personal services

(including salaries and wages)

Military Personnel Eligible for Combat Zone Exten-

Ohio—wages and salaries. Note: Wages which an S

sion—Members of the Army, Navy, Marines, Air Force, or

corporation pays to a shareholder-employee if the share-

Public Health Service of the United States government who

holder-employee is a “twenty (20) percent or greater”

serve in an area designated as a combat zone by presidential

direct or indirect equity investor in the S corporation

proclamation shall not be required to file an income tax return

shall not be exempt under the reciprocity agreement.

and pay the taxes, which would otherwise become due dur-

Virginia—commuting daily, salaries and wages

ing the period of service, until 12 months after the service is

completed. Members of the National Guard or any branch of

Taxpayers who qualify for this exemption and have no other

the Reserves called to active duty to serve in a combat zone

Kentucky taxable income should file Form 740-NP-R, Kentucky

are granted the same extension.

Income Tax Return, Nonresident–Reciprocal State, to obtain

a refund. Also, nonresidents who qualify for the exemption

MODIFIED GROSS INCOME AND FAMILY SIZE

should file Form 42A809, Certificate of Nonresidence, with

(Use With Chart A)

their employer to exempt their future wages from Kentucky

withholding.

Family Size—Consists of yourself, your spouse if married and

living in the same household and qualifying children. Family

Gambling income and distributive share income (Schedule

size is limited to four.

K-1) are not exempt under reciprocal agreements. This income

is fully taxable. A complete return must be filed if filing

Qualifying Dependent Child—Means a qualifying child as

requirements are met.

defined in Internal Revenue Code Section 152(c), and includes

a child who lives in the household but cannot be claimed as a

Military Personnel—Nonresident military personnel with

dependent if the provisions of Internal Revenue Code Section

civilian jobs in Kentucky are required to report this income

152(e)(2) and 152(e)(4) apply. In general, to be a taxpayer’s

on Form 740-NP except residents of reciprocal states (see

qualifying child, a person must satisfy four tests:

reciprocal states above). Any income from nonmilitary

Kentucky sources is also taxable.

Instructions For Form 740-Np - Nonresident Or Part-Year Resident Income Tax Return - 2011

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