Key takeaways
- Kentucky S corporations file Form PTE, which combines the pass-through return and the limited liability entity tax (LLET).
- The return is due the 15th day of the 4th month after year end, and an extension does not extend payment.
- Composite returns are gone for tax years beginning on or after January 1, 2022; nonresident individual owners are handled through Form 740 NP-WH withholding.
- The entity-level tax election uses Form 740-PTET and changes what passes to owners on the K-1.
- Collect Kentucky gross receipts, owner residency and prior-year Kentucky filings before preparing anything.
Which Kentucky return an S corporation files
The Kentucky Department of Revenue says S corporations file Form PTE, the Kentucky Pass-Through Entity Income and LLET Return, and owe LLET. Single-member LLCs owned by an individual file Form 725 instead and owe LLET only, so check the entity type on the federal return before you assign the Kentucky form.
A Kentucky S corporation does not owe corporation income tax in the ordinary case. The Department says it owes that tax only if it has built-in gains, passive investment income, or LIFO recapture tax under KRS 141.040(4). If the client converted from a C corporation, ask for the Form 2553 effective date and the old balance sheet before deciding.
Owners pay Kentucky income tax on their own returns, so the K-1 data you prepare drives each shareholder's state return. Schedule K-1 (Form 1120-S) is the starting point.
Due date and extension for tax year 2026
Kentucky says corporation and pass-through returns are due the 15th day of the 4th month following the close of the taxable year. For a calendar-year S corporation that is the 2026 return, due in April 2027. If the date falls on a weekend or legal holiday, it moves to the next business day. Check the Department's tax calendar for the exact 2027 day before you quote it to the client.
The federal Form 1120-S has an earlier due date than Kentucky's return, so the usual sequence is federal first, then Form PTE built from the finished federal numbers. The IRS says Form 7004 requests an automatic 6-month extension of time to file certain business income tax returns. Do not assume that the federal extension covers Kentucky. Confirm the Department's own extension procedure for pass-through returns on its extension page and keep the confirmation in the file.
The Department states that an extension extends time to file, not time to pay, and that payment is due by the original due date, with interest and penalties under KRS 131.180(2). For an S corporation this mostly means the LLET and any owner withholding. Tell the client the payment is due on the original date even when the return is extended.
LLET: the tax most S corporations forget
Every business protected from liability by Kentucky law is subject to LLET, including S corporations. If total gross receipts or total gross profits are $3 million or less, the LLET is the $175 minimum. Between $3 million and $6 million a sliding scale applies. Above $6 million, the tax is the smaller of Kentucky gross receipts multiplied by 0.095% or Kentucky gross profits multiplied by 0.75%.
Worked example: a calendar-year S corporation with Kentucky gross receipts of $8 million and Kentucky gross profits of $900,000. The receipts method gives $8,000,000 x 0.095% = $7,600. The profits method gives $900,000 x 0.75% = $6,750. The client owes the smaller figure, $6,750. A client with untracked cost of goods sold loses this choice, so ask for the detail early.
The Department also says pass-through entities reduce gross receipts by the share allocable to tax-exempt organizations, which matters if a nonprofit or retirement account holds stock. Ask the client who the shareholders are and whether any is exempt.
Nonresident owners: withholding, not composite
Composite returns are no longer allowed in Kentucky. The Department says the language was removed from KRS 141.206 for tax years beginning on or after January 1, 2022. Checklists that still offer composite filing are out of date for tax year 2026.
What applies instead is withholding. It is required only for nonresident individual shareholders. Nonresident C corporations are not subject to withholding, though they may have their own filing obligation. The entity files Form 740 NP-WH, and the Department says that form is not required if Form PTE passes a loss to its owners.
If an individual owner's expected tax exceeds $500, the entity makes estimated payments with Form 740 NP-WH-ES. Installments are due the 15th day of the 4th, 6th and 9th months of the taxable year and the 15th day of the 1st month after year end. Set a calendar item in October for any client with a nonresident shareholder, so the January installment is not a surprise.
At intake, record each shareholder's state of residence on the last day of the year and whether the owner is an individual, a trust, or a company. Only nonresident individuals trigger the withholding question. Keep the register in the workpapers.
The entity-level tax election and Form 740-PTET
The 2023 General Assembly enacted a pass-through entity tax. The Department's Form 740-PTET allows the election to pay the tax at the entity level, the filing of the return and the payment of the tax. Clients ask about it because of the federal state and local tax deduction limit.
The owner side runs through Form PTE. The Department says the refundable pass-through entity tax credit passes from Form PTE, Schedule K/Schedule K-1, Line 13. It also says business tax credits are not claimed on the 740-PTET or on the nonresident withholding return, so do not plan to offset the PTET with other credits on that form.
Before recommending the election, run the numbers for each owner: the federal tax effect, the Kentucky credit and any estimated payment timing. Read the Department's Pass-Through Entity Election FAQs for the current deadline and installment rules, because those details are in the Department's guidance and I have not stated them here. An election recorded without owner-by-owner math is a liability for the firm.
E-filing and the federal return you start from
The Department does not accept a business entity return directly through its website. Filing runs through approved software. Separate corporation and pass-through returns with federal gross receipts over $1,000,000 must be e-filed for tax years beginning on or after October 1, 2020, so most mid-sized S corporation clients cannot be paper filed.
On the federal side, S corporations required to file 10 or more returns in a calendar year must e-file Forms 1120-S. Shareholders report their share on Form 1040 or 1040-SR and Schedule E. Because the Kentucky schedule starts from the federal K-1, lock the federal numbers before you open Form PTE, or you will redo the state return after every federal change.
Shareholders with basis questions need Form 7203, which receives amounts from Schedule K-1 (Form 1120-S), box 13, code H. Ask for the prior-year Form 7203 with the state documents.
What to collect from the client
Send one request that covers both returns. Wording that works: "For the Kentucky S corporation return, please upload your Kentucky sales and gross receipts by location, cost of goods sold detail, a list of every shareholder with state of residence on December 31, 2026, and any Kentucky notices received this year." Put a due date on the request.
Add the items that change the state filing: the Form 2553 acceptance letter, the prior-year Kentucky Form PTE and any Form 740 NP-WH filings, the Kentucky withholding account number if one exists, and estimated payments already made, with dates and confirmation numbers.
For clients that sell outside Kentucky, ask for receipts by destination state, since without that split the LLET base is a guess. If a shareholder moved during the year, ask for the move date and new address in writing.
A request link with a due date and automatic reminders keeps this from living in email threads. Usual can send a document request to the client with a deadline and reminders, so the firm sees what is still missing before it starts Form PTE.