Who Must File Form 740-NP
Form 740-NP must be used by full-year nonresidents who had income from Kentucky sources and by part-year residents who had income while a Kentucky resident or from Kentucky sources while a nonresident. These persons must file Form 740-NP if (1) they had any income from Kentucky sources and a combined gross income from all sources of $5,000 or more, or (2) Kentucky gross receipts from self-employment of $5,000 or more.
Individuals who are residents of Kentucky for the entire tax year must use Form 740-EZ or 740. Persons who maintain a permanent residence in Kentucky (i.e., are domiciled in Kentucky) are considered residents. Persons not domiciled in Kentucky but who live in Kentucky for more than 183 days during the tax year are also considered residents.
Full-year nonresidents must report all income from Kentucky sources (including distributive share income, Schedule K-1), from activities carried on in Kentucky or from the performance of services in Kentucky and from property located in Kentucky.
Persons moving into Kentucky must report income received from Kentucky sources prior to becoming residents and income received from all sources after becoming Kentucky residents.
Residents moving out of Kentucky during the year must report income from all sources while a resident and from Kentucky sources while a nonresident.
Kentucky has reciprocal agreements with specific states. These agreements provide that taxpayers be taxed by their state of residence, and not the state where income is earned. Reciprocity does not apply to persons who live in Kentucky for more than 183 days during the tax year. The states and types of exemptions are as follows:
Illinois, Ohio, West Virginia wages and salaries
Indiana wages, salaries and commissions
Michigan, Wisconsin income from personal services (including salaries and wages)
Virginia commuting daily, salaries and wages
Taxpayers who qualify for this exemption and have no other Kentucky taxable income should file Form 740-NP-R, Kentucky Income Tax Return, Nonresident Reciprocal State, to obtain a refund. Also, nonresidents who qualify for the exemption should file Form 42A809, Certificate of Nonresidence, with their employer to exempt their future wages from Kentucky withholding.
Gambling income and distributive share income (Schedule K-1) are not exempt under reciprocal agreements. This income is fully taxable. A complete return must be filed if filing requirements are met.