Kentucky Tax Calculator 2026

Kentucky Income Tax

Kentucky levies a flat 4.0% state income tax for the 2026 tax year. This rate is the result of a phased reduction that began with House Bill 8, signed into law in 2022 by Governor Andy Beshear. The legislation established a trigger mechanism: each time the state’s General Fund receipts meet certain benchmarks and the Budget Reserve Trust Fund reaches a specified level, the income tax rate automatically decreases by 0.5 percentage points. Kentucky’s rate was 5% flat from 2005 through 2022, then dropped to 4.5% in 2023, and has since continued to decline. The long-term goal under the legislation is to eventually eliminate the state income tax entirely, though reaching 0% depends on continued revenue growth.

Kentucky’s income tax uses federal adjusted gross income (AGI) as the starting point. The state offers a standard deduction of $2,980 for all filers regardless of filing status. Kentucky does not have its own personal exemptions; instead, it provides a tax credit of $40 per dependent. The state conforms to many federal tax provisions, which simplifies the filing process for most taxpayers. One important note for Kentucky filers is that the state does not allow married couples to file jointly if they filed separately for federal purposes, and vice versa.

Kentucky provides meaningful retirement income exclusions. Up to $31,110 per person of pension income, 401(k) and IRA distributions, and other qualified retirement income is exempt from state income tax. Social Security benefits are fully excluded from Kentucky taxable income. Military retirement pay and government pensions also receive favorable treatment. These provisions make Kentucky relatively competitive for retirees, especially compared to neighboring states like West Virginia that tax more forms of retirement income.

Kentucky Sales Tax

Kentucky imposes a 6% state sales tax with no local option sales taxes. This uniformity is a major simplification compared to states like Kansas or Louisiana where combined local rates vary widely. The 6% rate applies statewide to the sale of tangible personal property and select services. Kentucky exempts groceries (food for home consumption), prescription medications, and residential utilities from sales tax, providing important relief for lower-income households.

In recent years, Kentucky has expanded its sales tax base to include more services, a move designed to help offset revenue lost from income tax rate reductions. As of 2023, Kentucky began taxing services such as ride-sharing, personal care services (hair salons, spas), fitness and recreation clubs, and various other previously untaxed services. This base broadening was a deliberate policy choice to maintain state revenue as the income tax rate declines. Digital goods, including streaming services and downloaded software, are also subject to the 6% sales tax.

Kentucky Property Tax

Kentucky’s effective property tax rate averages approximately 0.83%, which is below the national average and one of the lower rates in the eastern United States. Property is assessed at 100% of fair market value by county property valuation administrators (PVAs). The state uses a unique system where the General Assembly sets the state property tax rate annually to generate a consistent amount of revenue growth, effectively limiting how much additional revenue rising property values can produce at the state level.

Local property tax rates are set by counties, cities, and school districts. Kentucky’s Homestead Exemption provides a reduction in assessed value for homeowners aged 65 and older or those who are totally disabled. The exemption amount is adjusted periodically and was approximately $46,350 for recent tax years. This exemption only applies to the home and surrounding land, not to investment or rental properties. Kentucky also has a property tax on motor vehicles, assessed annually based on the vehicle’s average trade-in value.

Kentucky Local Occupational Taxes

One of the most significant and often overlooked aspects of Kentucky’s tax system is the prevalence of local occupational license taxes, sometimes called payroll taxes or occupational taxes. Kentucky cities and counties are authorized to levy taxes on wages, salaries, and net profits of businesses operating within their jurisdictions. These taxes are in addition to the state income tax and can add substantially to a worker’s total tax burden.

Louisville Metro levies a 2.2% occupational tax on all wages earned within the metro area, and Lexington-Fayette County imposes a similar 2.25% occupational license fee. Many smaller cities and counties also impose occupational taxes ranging from 1% to 2%. For someone earning $75,000 in Louisville, this adds $1,650 to their tax bill on top of the $3,000 state income tax (4%). These local taxes are not always visible on standard tax calculators, so Kentucky workers should factor them into any take-home pay calculations. Unlike state income tax, these local taxes typically apply to gross wages without the benefit of a standard deduction.

Kentucky vs. Neighboring States

• Kentucky vs. Tennessee: Tennessee has no state income tax on wages, making it significantly cheaper for wage earners. However, Tennessee has a higher combined sales tax rate averaging about 9.55%. Kentucky’s 4% flat rate plus local occupational taxes can make the gap narrower than it appears.
• Kentucky vs. Indiana: Indiana’s flat income tax rate of 3.05% is lower than Kentucky’s 4.0%, and Indiana also has local county income taxes averaging about 1.5%. Kentucky’s local occupational taxes serve a similar function. Property taxes are comparable between the two states.
• Kentucky vs. Ohio: Ohio does not have a traditional income tax on the first $26,050 of income and applies rates up to 3.5% above that threshold. Ohio’s combined rates are generally lower, but Ohio also has local city income taxes (particularly in cities like Columbus, Cleveland, and Cincinnati) that add to the burden.
• Kentucky vs. West Virginia: West Virginia has graduated rates from 2.36% to 5.12%, higher than Kentucky’s 4% flat rate at most income levels. West Virginia also taxes Social Security benefits for higher-income residents and has a higher sales tax rate of 6.5%.