Kentucky PKG KREDA is a Kentucky tax credit package used by a business that has been approved for Kentucky Rural Economic Development Act incentives. It is designed for approved KREDA projects connected to rural economic development, and it helps the business calculate, claim, and track the tax credit allowed for the project. This package is not a general tax form for every Kentucky taxpayer. It should only be used when the business has received the required approval for the KREDA credit under the Kentucky Rural Economic Development Act rules. The package separates the tax effect of the approved KREDA project from the rest of the business so the taxpayer can determine how much Kentucky corporation income tax, Kentucky income tax, or limited liability entity tax, often called LLET, is attributable to the project. A corporation uses Schedule KREDA to compute the credit against Kentucky corporation income tax and LLET. A pass-through entity uses Schedule KREDA-SP to calculate the project tax, the allowable KREDA credit, any tax due from the project, or an estimated tax payment election. Schedule KREDA-T is used for tracking over the life of the financing agreement or tax incentive agreement, including debt service payments or approved costs, employee wage assessment credits, yearly credit limits, and credits claimed. The package is especially important because the credit cannot simply be claimed without limits. The available credit depends on the tax connected to the KREDA project and the limitation shown on the tracking schedule. If the agreement begins or ends during the taxable year, the project income and related tax items may need to be prorated so only the part of the year inside the agreement term is included.
Who Should Use Kentucky PKG KREDA
Use Kentucky PKG KREDA only if the business has approval for the KREDA credit.
The business must have received preliminary or final approval for the KREDA project on or before June 26, 2009, to determine the allowable credit.
Do not use this package for a project that has not been approved for KREDA incentives.
Only include one incentive project in each Kentucky PKG KREDA package.
If the business has more than one approved project, complete a separate KREDA package for each project.
If the business files Kentucky Form 720 or Form 720U, complete Schedule KREDA and Schedule KREDA-T.
If the business files Kentucky Form PTE or Form 725, complete Schedule KREDA-SP and Schedule KREDA-T.
How To File Kentucky PKG KREDA
Attach the completed KREDA package to the Kentucky tax return that matches the business type. A corporation filing Form 720 or Form 720U should attach Schedule KREDA and Schedule KREDA-T. A pass-through entity filing Form PTE or Form 725 should attach Schedule KREDA-SP and Schedule KREDA-T. If the project LLET must be calculated separately, complete Schedule L-ECON and attach it to the return. If the business has more than one approved economic development project, do not combine them on one schedule. Each project needs its own computation. If the business uses separate accounting, keep the supporting schedules that show how project income, Kentucky gross receipts, and Kentucky gross profits were calculated. If the business uses an approved formula or alternative method, attach the approval letter. Enter the allowable credit on Schedule TCS, and make sure the total credits do not reduce LLET below the $175 minimum or reduce income tax below zero.
First And Last Year Proration Rules
KREDA incentives can only be claimed during the active term of the agreement.
If the agreement starts during the taxable year, calculate the first-year proration by dividing the number of days from the activation date through the end of the taxable year by the total number of days in that taxable year.
If the agreement ends during the taxable year, calculate the final-year proration by dividing the number of days from the first day of the taxable year through the end of the agreement term by the total number of days in that taxable year.
Use the proration factor to determine project income when separate period accounting is not available.
Separate period accounting is preferred because it uses actual income from the agreement period instead of an estimated percentage.
Package KREDA Cover Page Instructions
Approval Requirement: Use the package only when the business has received approval for a Kentucky Rural Economic Development Act credit.
Instruction Reminder: Review all instructions before completing the package because the required schedules depend on the business type.
Attachment Requirement: Attach the completed package to Form 720, Form 720U, Form PTE, or Form 725, whichever applies to the taxpayer.
Schedule KREDA Line By Line Instructions For Corporations
Use Schedule KREDA when the approved company is a corporation filing Form 720 or Form 720U.
Schedule KREDA Header Instructions
Taxable Year Ending: Enter the ending month and year of the corporation’s taxable year.
Name Of Corporation: Enter the legal name of the corporation claiming the KREDA credit.
Federal Identification Number: Enter the corporation’s federal employer identification number.
Kentucky Corporation/LLET Account Number: Enter the Kentucky Corporation/LLET account number. This number must have 9 digits. If the number has only 6 digits, add zeros at the beginning.
Location Of Project: Enter the physical location of the approved KREDA project.
City: Enter the city where the KREDA project is located.
County: Enter the Kentucky county where the project is located.
Activation Date Of KREDA Incentive Agreement: Enter the month, day, and year the KREDA incentive agreement became active.
Economic Development Project Number: Enter the project number assigned to the approved KREDA project.
Schedule KREDA Part I Instructions: Computation Of LLET Excluding KREDA Project
Line 1: Enter the total LLET from Form 720, Part II, line 1, or from Form 720U, Schedule U8, Section E, line 1.
Line 2: Enter the LLET that belongs only to the KREDA project. Use Schedule L-ECON to calculate this amount with only the project’s Kentucky gross receipts and Kentucky gross profits. Attach Schedule L-ECON to the return. If the corporation has multiple approved projects, prepare a separate Schedule L-ECON for each project. In the first and last years, include only amounts received during the agreement term.
Line 3: Subtract line 2 from line 1. This gives the corporation’s LLET after removing the LLET connected to the KREDA project.
Schedule KREDA Part II, Section A Instructions: Computation Of Corporation Tax
Line 1: Enter the corporation income tax from Form 720, Part III, line 1, or from Form 720U, Schedule U5, Section D, line 8.
Line 2: Enter the corporation’s LLET from Schedule KREDA, Part I, line 1.
Line 3: Calculate the nonrefundable LLET credit. Subtract $175 from line 2, but do not enter more than the amount on line 1.
Line 4: Add line 1 and line 2, then subtract line 3. This is the total corporation tax before removing the KREDA project amount.
Schedule KREDA Part II, Section B Instructions: Computation Of Tax Excluding KREDA Project
Line 1: Enter taxable net income from Form 720, Part I, line 43, or from Form 720U, Schedule U5, Section D, line 7.
Line 2: Enter the net income from the KREDA project. If the KREDA project has a loss, enter zero. If the corporation’s only Kentucky operation is the KREDA project, enter the same amount shown on line 1. If the corporation has other Kentucky operations, attach a schedule showing how the KREDA project net income was calculated. In the first and last years, include only Kentucky net income received during the agreement term.
Line 3: Subtract line 2 from line 1. This is taxable net income after excluding KREDA project income. If line 2 is greater than line 1, enter zero.
Line 4: Multiply line 3 by 5 percent. This gives the income tax liability after excluding the KREDA project.
Line 5: Enter the LLET excluding the KREDA project from Schedule KREDA, Part I, line 3.
Line 6: Subtract $175 from line 5, but do not enter more than the amount on line 4.
Line 7: Add line 4 and line 5, then subtract line 6. This is the total tax after excluding the KREDA project.
Line 8: Subtract Section B, line 7 from Section A, line 4. This is the tax attributable to the KREDA project. Carry this amount to Schedule KREDA, Part III, line 1.
Schedule KREDA Part III Instructions: Limitation
Line 1: Enter the tax liability attributable to the KREDA project from Part II, Section B, line 8.
Line 2: Enter the limitation from Schedule KREDA-T, Column E.
Line 3: Enter the smaller amount from line 1 or line 2. This is the allowable KREDA tax credit for the year.
Schedule TCS Entry: Report the allowable credit on Schedule TCS, Part I, Column E and Column F.
Additional Schedule KREDA Rules For Corporations
Separate Project Calculation: If the corporation has more than one approved economic development project, compute the credit separately for each project.
Schedule L-ECON Requirement: Use Schedule L-ECON to calculate the separate LLET for the KREDA project when required.
Separate Facility Method: If the KREDA project is a completely separate facility, use separate accounting to calculate net income, Kentucky gross receipts, and Kentucky gross profits directly connected to that facility.
Expansion Of Existing Facility: If the KREDA project expands an existing facility, calculate the full facility amounts first, then allocate the correct portion to the KREDA project using an approved formula.
Approved Percentage Or Formula: If an approved formula is used for an expansion project, attach the approval letter.
Alternative Method: If separate accounting is not practical, use an approved alternative method and attach the approval letter.
Supporting Schedules: If the corporation has both project operations and non-project operations, attach schedules showing the calculation of project net income, Kentucky gross receipts, and Kentucky gross profits.
Schedule KREDA-SP Line By Line Instructions For Pass-Through Entities
Use Schedule KREDA-SP when the approved company is a pass-through entity filing Form PTE or Form 725.
KREDA credits calculated by a pass-through entity do not pass through to members, partners, or shareholders. The pass-through entity calculates the tax connected to the KREDA project and applies the credit at the entity level. The entity should use Form PTE(K) to remove KREDA project net income from the owners’ distributive share income.
Schedule KREDA-SP Header Instructions
Taxable Year Ending: Enter the ending month and year of the pass-through entity’s taxable year.
Name Of Pass-Through Entity: Enter the legal name of the pass-through entity.
Federal Identification Number: Enter the entity’s federal employer identification number.
Kentucky Corporation/LLET Account Number: Enter the Kentucky Corporation/LLET account number. It must contain 9 digits. If it has only 6 digits, add zeros at the beginning.
Location Of Project: Enter the physical location of the approved KREDA project.
City: Enter the city where the project is located.
County: Enter the Kentucky county where the project is located.
Activation Date Of KREDA Incentive Agreement: Enter the month, day, and year the KREDA agreement became active.
Economic Development Project Number: Enter the project number assigned to the approved KREDA project.
Schedule KREDA-SP Part I Instructions: Computation Of KREDA Tax Credit And Tax Due
Line 1: Enter Kentucky taxable income from the KREDA project. If the pass-through entity’s only operation is the KREDA project, use the net income or loss from Form PTE. If the entity has other operations, attach a schedule showing how the KREDA project income or loss was calculated. In the first and last years, include only Kentucky taxable income received during the agreement term.
Line 2: Enter the net operating loss deduction from the KREDA project that is being carried forward from prior years.
Line 3: Subtract line 2 from line 1. This is the Kentucky taxable income from the KREDA project after the net operating loss deduction.
Line 4: Multiply line 3 by 5 percent. This gives the income tax liability for the KREDA project.
Line 5: Enter the LLET on the KREDA project from Schedule L-ECON. This line does not apply to general partnerships. For entities subject to LLET, calculate the project LLET using only the KREDA project’s Kentucky gross receipts and Kentucky gross profits, then attach Schedule L-ECON.
Line 6: Calculate the nonrefundable LLET credit by subtracting $175 from line 5, but do not enter more than line 4. General partnerships should not complete this line.
Line 7: Add line 4 and line 5, then subtract line 6. This is the total tax on the KREDA project.
Line 8: Enter the limitation from Schedule KREDA-T, Column E.
Line 9: Compare line 7 and line 8. Enter the smaller amount as either a KREDA tax credit on line 9(a) or as an estimated tax payment on line 9(b). Do not enter an amount on both line 9(a) and line 9(b).
Line 9(a): Enter the allowable amount here if the pass-through entity is claiming it as a KREDA tax credit.
Line 9(b): Enter the allowable amount here if the pass-through entity chooses to treat it as an estimated tax payment instead of a KREDA tax credit. If this option is used, complete Part II.
Line 10: If line 7 is greater than the amount entered on line 9(a) or line 9(b), enter the difference. This is the tax due on the KREDA project. Add this amount to Form PTE, Part II, line 16, or Form 725, Part II, line 15.
Schedule KREDA-SP Part II Instructions: Estimated Tax Election
Name Of Pass-Through Entity: Enter the legal name of the pass-through entity making the election.
Taxable Year Ended: Enter the taxable year ending date for the year of the election.
Election Amount: The election amount is the smaller amount from Schedule KREDA-SP, Part I, line 7 or line 8.
Estimated Tax Payment Treatment: Complete this section only when the entity chooses line 9(b). The selected amount is treated as an estimated tax payment instead of a KREDA tax credit.
Owner Tax Treatment: The estimated tax payment is made to satisfy the tax liability of the partners, members, or shareholders, but they do not claim any portion of that payment separately on their Kentucky income tax returns.
Signature Of Shareholder, Partner, Or Member: The authorized shareholder, partner, or member signs the election.
Print Name: Print the name of the person signing the election.
Date: Enter the date the election is signed.
Additional Schedule KREDA-SP Rules For Pass-Through Entities
Complete Form PTE First: Complete Form PTE first to determine the full entity income, loss, deductions, and related items.
No Owner-Level Credit Pass-Through: The KREDA credit does not pass through to partners, members, or shareholders.
No Loss Pass-Through From Project: KREDA project losses also do not pass through to owners. Prior project losses must be applied against project income before calculating the credit.
Multiple Projects: If the pass-through entity has more than one economic development project, complete the correct schedule for each project.
Separate Facility: If the project is a completely separate facility, use separate accounting to determine net income, Kentucky gross receipts, and Kentucky gross profits from the project.
Expansion Of Existing Facility: If the project is an expansion of an existing facility, calculate the entire facility’s amounts, then allocate the proper share to the KREDA project using an approved formula.
Alternative Method: If separate accounting is not practical, use an approved alternative method and attach the approval letter.
General Partnership Rule: A general partnership should not complete lines 5 and 6 because it is not subject to LLET.
Schedule KREDA-T Line By Line Instructions For Tracking The KREDA Project
Schedule KREDA-T tracks the KREDA project throughout the agreement period. It records debt service payments or approved costs, employee wage assessment credits, credit limitations, and tax credits claimed.
Schedule KREDA-T Header Instructions
Name Of Entity: Enter the legal name of the entity approved for the KREDA project.
Entity Type, Corporation: Check this box if the approved entity is a corporation.
Entity Type, Limited Liability Pass-Through Entity: Check this box if the approved entity is a limited liability pass-through entity.
Entity Type, General Partnership: Check this box if the approved entity is a general partnership.
Entity Type, Other: Check this box if another entity type applies, then write the entity type on the blank line.
Federal Identification Number: Enter the entity’s federal employer identification number.
Kentucky Corporation/LLET Account Number: Enter the Kentucky Corporation/LLET account number. It must contain 9 digits. Add leading zeros when needed.
Location Of Project: Enter the physical location of the approved KREDA project.
City: Enter the project city.
County: Enter the project county.
Activation Date Of KREDA Incentive Agreement: Enter the activation date for the KREDA agreement. For projects approved before July 15, 1996, use the date the financing agreement was executed. For projects approved on or after July 15, 1996, use the activation date established for the inducements under the financing agreement.
Economic Development Project Number: Enter the assigned economic development project number.
Schedule KREDA-T Column Instructions
Column A: Enter the ending date of the tax year for the information shown on that row. Use the month, day, and year.
Column B: Leave this column blank for the first taxable year of the agreement. For later years, enter the prior-year carryforward balance. To calculate it, subtract the prior-year Column F amount from the prior-year Column E amount. If the prior-year Column F equals the prior-year Column E, enter zero. If the prior-year Column F is greater than the prior-year Column E, the business has claimed more credit than it was eligible to claim.
Column C: Enter the debt service payment or annual approved costs for the taxable year, whichever applies under the agreement. Debt service payment includes both principal and interest paid under the financing agreement.
Column D: Enter the employee wage assessment credit claimed for the year. Include both the state and local portions if eligible, whether withheld from employee salaries or claimed as a refund during the taxable year.
Column E: Add Column B and Column C, then subtract Column D. This gives the KREDA credit limitation for the year. Carry this amount to Schedule KREDA, Part III, line 2, or Schedule KREDA-SP, Part I, line 8, whichever applies.
Column F: Enter the KREDA tax credit claimed on the return for this project. If the credit used against income tax and the credit used against LLET are different, record the greater amount for tracking purposes. If no credit is claimed for the project, enter zero.
Schedule KREDA-T Footnote Instructions
Debt Service Payment: Use debt service payment for KREDA projects that follow the version of the law in effect before July 15, 2002.
Approved Costs: Use approved costs for KREDA projects that follow the version of the law in effect after July 14, 2002.
Schedule KREDA-T Filing Rules
Separate Tracking Schedule: Maintain a separate Schedule KREDA-T for each approved KREDA project.
Start With First Agreement Year: Begin tracking with the first tax year of the KREDA financing agreement or tax incentive agreement.
Use One Row Per Year: Complete Columns A through F on a separate row for each year of the agreement.
Attach Updated Schedule: Attach the updated Schedule KREDA-T to Schedule KREDA or Schedule KREDA-SP when filing the Kentucky tax return.
Attach With Wage Reports: Also attach the updated Schedule KREDA-T to the Wage Assessment Report and Annual Reconciliation.
Schedule TCS Reporting: Enter all tax credits on Schedule TCS.
Credit Ordering Rule: Claim credits in the required order.
Minimum Tax Rule: Total credits cannot reduce LLET below $175 and cannot reduce income tax below zero.
Final Filing Checklist
Approval Confirmed: Make sure the business has approval for the KREDA credit before using the package.
Approval Timing Checked: Confirm the project received preliminary or final approval on or before June 26, 2009.
Correct Schedule Selected: Use Schedule KREDA for Form 720 or Form 720U filers. Use Schedule KREDA-SP for Form PTE or Form 725 filers.
Schedule KREDA-T Included: Attach Schedule KREDA-T for the approved KREDA project.
One Project Per Package: Do not combine more than one KREDA project in a single package.
Schedule L-ECON Attached If Required: Attach Schedule L-ECON when calculating separate project LLET.
Supporting Schedules Attached: Attach schedules that show project net income, Kentucky gross receipts, and Kentucky gross profits when the business has both KREDA project activity and other activity.
Approval Letters Attached If Needed: Attach any approval letter for an alternative method, approved percentage, or approved formula.
First And Last Year Proration Reviewed: If the agreement starts or ends during the taxable year, include only project activity from inside the agreement period.
Employee Wage Assessment Entered: Make sure eligible employee wage assessment credits are included in Schedule KREDA-T, Column D.
Credit Limitation Carried Forward Correctly: Carry Schedule KREDA-T, Column E to Schedule KREDA, Part III, line 2, or Schedule KREDA-SP, Part I, line 8.
Schedule TCS Completed: Report the allowable KREDA credit on Schedule TCS.
Credit Limits Checked: Confirm the credit does not exceed the KREDA project tax liability or the Schedule KREDA-T limitation.