Kentucky collects state income tax on wages, retirement income, and investment earnings
Yes, Kentucky has a state income tax. The state taxes your wages, retirement income, interest, dividends, and capital gains. Unlike some states that exempt certain types of income, Kentucky taxes most sources of earnings at the same rate.
Kentucky's income tax rate is 5.75 percent on all taxable income, with no brackets or variations based on how much you earn. This flat rate applies whether you make $20,000 or $200,000 per year. The state also allows a standard deduction and personal exemptions, which reduce the amount of income actually subject to tax.
You file Kentucky state taxes on Form 740, which you submit to the Kentucky Department of Revenue. If your employer withholds federal income tax, they typically withhold state tax at the same time. If you owe money at tax time, you pay it with your return; if you overpaid, you receive a refund.
Key Takeaways
- Kentucky's state income tax rate is a flat 5.75 percent on all types of taxable income, with no rate changes based on earnings level.
- The state allows a standard deduction and personal exemptions that reduce your taxable income before the 5.75 percent rate applies.
- Most Kentucky residents file state taxes using Form 740 and submit it to the Kentucky Department of Revenue.
- Retirement income, including Social Security, pensions, and 401(k) withdrawals, is subject to Kentucky income tax unless it qualifies for a specific exemption.
Who must file a Kentucky state tax return
You must file a Kentucky return if your income exceeds the threshold set by the state for your filing status. For the 2023 tax year, a single filer with a standard deduction of $2,860 would file if their gross income exceeded that amount. The threshold changes each year and depends on whether you file as single, married filing jointly, head of household, or another status.
Even if you do not owe tax, filing may be worth doing if you had income withheld during the year. Kentucky allows a tax credit for taxes paid to other states, so if you worked in Ohio, Indiana, or another neighboring state and paid their income tax, you may receive a credit on your Kentucky return.
What income is taxed and what is not
Kentucky taxes wages, salaries, tips, and self-employment income. It also taxes interest from savings accounts and bonds, dividends from stocks, capital gains when you sell investments at a profit, and distributions from retirement accounts like 401(k)s and IRAs.
Social Security benefits are not taxed by Kentucky, even though they are taxed by the federal government in some cases. Military retirement pay and some pension income may may have access to for exemptions under Kentucky law, but the rules are specific to the type of pension and your age. You should review the Kentucky Department of Revenue website or speak with a tax preparer to determine whether your particular pension qualifies.
Certain types of income are also excluded: gifts, inheritances, life insurance proceeds, and workers' compensation are not subject to Kentucky income tax.
How the standard deduction and exemptions reduce your tax bill
The standard deduction is a fixed dollar amount that you subtract from your total income before calculating tax. For 2023, Kentucky's standard deduction was $2,860 for single filers and $5,720 for married couples filing jointly. These amounts increase slightly each year to account for inflation.
In addition to the standard deduction, Kentucky allows a personal exemption of $10 for each person claimed on your return. While this amount is small compared to federal exemptions, it does reduce your taxable income slightly. If you have dependents, you receive an exemption for each one.
If you itemize deductions on your federal return instead of taking the standard deduction, you may also itemize on your Kentucky return. However, most Kentucky residents benefit from the standard deduction because it is simpler and often results in a lower tax bill.
Tax credits that lower what you owe
Kentucky offers several tax credits that directly reduce the amount of tax you owe. The Earned Income Tax Credit (EITC) is available to low- and moderate-income workers and is based on your federal EITC. If you received a federal EITC, you may also receive a Kentucky EITC, which is a percentage of your federal credit.
The state also offers a credit for taxes paid to other states. If you worked in another state and paid income tax there, you can claim a credit on your Kentucky return to avoid paying tax twice on the same income. The credit is limited to the lesser of the tax you paid to the other state or the Kentucky tax on that income.
Child and dependent care credits are available if you paid for care so you could work. The credit is based on federal rules but calculated on your Kentucky return. You must have earned income and file Form 2441 with your return to claim this credit.
How to file your Kentucky state taxes
You file Kentucky state taxes using Form 740, the Kentucky Individual Income Tax Return. You can obtain this form from the Kentucky Department of Revenue website or request it by mail. The form asks for your personal information, income from all sources, deductions, and credits.
You can file by mail or electronically through the state's approved e-file providers. Electronic filing is faster and reduces the chance of errors because the software checks your math and flags missing information. If you file electronically, you typically receive a refund within two to three weeks; if you mail a paper return, refunds take longer.
The important date to file is the same as the federal important date, usually April 15. If you need more time, you can request an extension, which gives you until October 15 to file. An extension to file is not an extension to pay, so if you owe tax, you should pay by April 15 to avoid penalties and interest.
Withholding and estimated tax payments
If you are employed, your employer withholds Kentucky income tax from your paycheck based on the information you provide on Form K-4, the Kentucky Employee's Withholding Certificate. You can adjust your withholding if you expect to owe money at tax time or if you expect a large refund.
If you are self-employed or have income not subject to withholding, you may need to make estimated tax payments to Kentucky four times per year. These payments are due on April 15, June 15, September 15, and January 15. If you do not pay enough through withholding and estimated payments, you may owe a penalty when you file.
Frequently Asked Questions
Does Kentucky tax retirement income and pensions?
Kentucky taxes most retirement income, including 401(k) and IRA distributions, at the 5.75 percent rate. Social Security is not taxed. Military retirement pay and some government pensions may may have access to for exemptions, but the rules depend on your specific situation and age. Contact the Kentucky Department of Revenue to determine whether your pension qualifies.
What is the Kentucky income tax rate?
Kentucky has a flat income tax rate of 5.75 percent on all taxable income. There are no brackets, so the rate does not change based on how much you earn. The standard deduction and personal exemptions reduce the amount of income subject to this rate.
Can I claim a credit for taxes paid to another state?
Yes. If you worked in another state and paid income tax there, you can claim a credit on your Kentucky return. The credit is limited to the lesser of the tax you paid to the other state or the Kentucky tax on that income, so you do not pay tax twice on the same earnings.
What happens if I do not file a Kentucky tax return?
If you owe tax and do not file, the Kentucky Department of Revenue may assess penalties and interest on the unpaid amount. If you are due a refund, you have a limited time to claim it—typically three years from the original due date. Filing protects you from penalties and ensures you receive any refund you are due.
How do I adjust my withholding if I am over- or under-withheld?
Complete a new Form K-4 and submit it to your employer. If you expect to owe money, increase your withholding; if you expect a large refund, decrease it. You can adjust your withholding at any time during the year, and the change takes effect on your next paycheck.