Kentucky has a 3.5% flat income tax rate for 2026 — cut from 4.0% after Governor Andy Beshear signed HB 1 on February 6, 2025, continuing a multi-year rate-cutting process the General Assembly launched in 2022.
Kentucky Income Tax Rate for 2026
| Tax Type | Rate |
|---|---|
| Kentucky income tax | 3.5% (flat, 2026) |
Kentucky simplified its tax system in 2018, moving from progressive brackets to a single flat rate, and has cut that rate several times since 2022 as part of an ongoing phase-down tied to state revenue targets.
Kentucky Tax Calculator Examples
Example 1: $75,000 Single Filer
| Component | Calculation |
|---|---|
| Gross income | $75,000 |
| Standard deduction (confirm current amount) | ~-$3,160 |
| Taxable income | ~$71,840 |
| Kentucky tax (3.5%) | ~$2,514 |
| Effective rate | ~3.35% |
Example 2: $150,000 Married Filing Jointly
| Component | Calculation |
|---|---|
| Gross income | $150,000 |
| Standard deduction (confirm current amount) | ~-$5,920 |
| Taxable income | ~$144,080 |
| Kentucky tax (3.5%) | ~$5,043 |
| Effective rate | ~3.36% |
Kentucky Standard Deduction
Kentucky’s standard deduction is adjusted for inflation annually and is much smaller than the federal deduction. Confirm the exact current-year amount with the Kentucky Department of Revenue, as this figure was not independently re-verified this session.
Kentucky Retirement Income Exclusion
Pension Exclusion
Kentucky allows an exclusion for retirement income, adjusted for inflation each year. Confirm the current-year amount with the Kentucky Department of Revenue.
Qualifications:
- Must have retired under a plan requiring 5+ years of service (for pre-2018 accrued benefits; rules differ for benefits accrued after January 1, 2018 — confirm current details)
- Applies to pensions, 401(k), IRA distributions
- Kentucky state, local, and federal pensions qualify
Social Security
Fully exempt — Kentucky does not tax Social Security benefits.
What Income is Taxed in Kentucky?
Taxed:
- Wages and salaries
- Self-employment income
- Interest and dividends
- Capital gains (taxed as ordinary income)
- Retirement income (above the exclusion)
- Rental income
Not taxed or exempt:
- Social Security — Fully exempt
- Qualifying pension income up to the current-year exclusion amount
- Kentucky municipal bond interest
- Railroad retirement benefits
Kentucky vs. Neighboring States
| State | Top Income Tax Rate (confirm current figures) |
|---|---|
| Kentucky | 3.5% (flat) |
| Indiana | 2.95% + local county tax |
| Ohio | Confirm current top rate |
| West Virginia | Confirm current top rate |
| Tennessee | 0% (no income tax) |
| Virginia | Confirm current top rate |
| Illinois | 4.95% (flat) |
Kentucky’s flat 3.5% rate is competitive in the region following the 2026 cut.
Local Income Taxes
Kentucky cities and counties can levy local occupational/payroll taxes. Confirm current rates with the specific city or county, as these are set locally and change over time — Louisville and Lexington-Fayette have historically had among the higher local rates in the state.
Filing Kentucky State Taxes
| Filing Requirement | Details |
|---|---|
| Form | Form 740 |
| Due date | April 15 (with federal) |
| E-file | Yes, through KY DOR |
| Extension | Automatic if federal extension filed |
Kentucky Tax Credits
Family Size Tax Credit
Credit based on modified gross income and family size:
- Phases out at higher incomes
- Reduces tax liability
Child and Dependent Care Credit
- Based on the federal credit
- Reduced by income thresholds
Kentucky Sales Tax
- State rate: 6%
- No local sales tax option
- Groceries exempt
Kentucky Property Tax
Confirm the current average effective property tax rate with the Kentucky Department of Revenue or the Tax Foundation, as this figure was not independently re-verified this session. Kentucky property taxes have historically been below the national average.
Tips to Reduce Kentucky Taxes
- Claim the pension exclusion — confirm current dollar amount
- Consider local taxes — some cities add 2 percentage points or more
- Max retirement contributions — 401(k), IRA reduce taxable income
- HSA contributions — triple tax advantage at the federal level
- Capital loss harvesting — offset gains
- Itemize if beneficial — compare to the small standard deduction
Kentucky Tax Authority
Kentucky Department of Revenue
- Website: revenue.ky.gov
- Phone: 502-564-4581
- For refunds, returns, and questions
Bottom Line
Kentucky has a 3.5% flat income tax for 2026 — cut from 4.0% by HB 1, effective January 1, 2026, and simple and competitive regionally. The state offers a pension income exclusion (confirm current dollar amount) and full Social Security exemption, making it attractive for retirees. However, local income taxes in major cities like Louisville and Lexington can significantly increase effective rates. Kentucky’s small standard deduction means less up-front tax reduction than in states with a larger deduction.
For a side-by-side comparison of every state’s income tax rates, see state income tax rates by state 2026 and best and worst states for taxes 2026. Federal income tax applies on top of state taxes — see 2026 federal income tax brackets to calculate your combined liability.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy