Kentucky has a state income tax, and it applies to wages, retirement income, and investment earnings

Kentucky taxes income at a flat rate of 4.75 percent on most types of earnings. This rate applies to wages from a job, self-employment income, interest, dividends, and capital gains. Unlike some states that have no income tax or multiple tax brackets, Kentucky uses one rate across all income levels.

The state also taxes retirement income, including distributions from 401(k)s, IRAs, and pensions. However, Kentucky offers a partial exclusion for retirement income if you meet certain age and income requirements — meaning some of your retirement money may not be taxed at all.

Kentucky does not have a separate sales tax rate that varies by county, but cities and counties can add local taxes on top of the state rate. Your total tax burden depends on where you live and work within the state.

Key Takeaways

  • Kentucky's state income tax rate is a flat 4.75 percent on wages, self-employment income, and most other earnings.
  • Retirement income is taxed, but you may exclude some of it if you are at least 59½ years old and meet income limits.
  • Kentucky taxes capital gains at the same 4.75 percent rate as ordinary income, with no preferential rate.
  • Local taxes in cities and counties add to the state rate, so your total tax varies by location.
  • You file Kentucky taxes using Form 740, which you submit to the Kentucky Department of Revenue along with your federal return.

How the 4.75 percent flat tax rate works

The 4.75 percent rate is applied to your taxable income — the amount left after you subtract the standard deduction or itemize deductions. For the 2024 tax year, the Kentucky standard deduction is $2,860 for single filers and $5,720 for married couples filing jointly. These amounts change each year.

Because Kentucky uses a flat rate, you pay the same percentage whether you earn $30,000 or $300,000. This differs from federal income tax, which uses brackets that increase as your income rises. The flat rate simplifies calculation but means higher earners pay the same percentage as lower earners.

If you work for an employer, Kentucky income tax is withheld from your paycheck. Your employer uses a withholding certificate to determine how much to take out. If you are self-employed, you pay estimated taxes quarterly to avoid a large bill at tax time.

Retirement income and the age 59½ exclusion

Kentucky allows you to exclude some retirement income from state taxation if you meet two conditions: you must be at least 59½ years old, and your total income must fall below a threshold that changes yearly. For 2024, the threshold is $41,110 for single filers and $68,510 for married couples filing jointly.

The exclusion applies to distributions from IRAs, 401(k)s, 403(b)s, pensions, and annuities. Social Security benefits are not taxed by Kentucky at all, regardless of age or income. If your retirement income exceeds the threshold, you lose the exclusion entirely — it does not phase out gradually.

Military pensions and federal employee pensions receive special treatment. Military retirement pay is fully excluded from Kentucky taxation. Federal employee pensions are taxed like other retirement income, subject to the age and income limits.

Capital gains and investment income

Kentucky taxes capital gains — the profit you make when you sell an investment at a higher price than you paid — at the same 4.75 percent rate as ordinary income. There is no preferential rate for long-term capital gains, unlike the federal tax system.

Interest income from savings accounts, bonds, and CDs is also taxed at 4.75 percent. Dividend income from stocks is taxed the same way. If you have significant investment income, you may owe estimated taxes throughout the year rather than waiting until April.

Local taxes that add to the state rate

Kentucky allows cities and counties to impose their own income taxes on top of the state rate. These local taxes range from 0 to 2.5 percent depending on where you live. Louisville, for example, has a local income tax of 2.25 percent, which means residents pay 4.75 percent to the state plus 2.25 percent to the city.

Some Kentucky counties have no local income tax at all. If you live in one of those counties, you pay only the state rate of 4.75 percent. If you work in a different county than where you live, you may owe local tax to both counties — though most places offer a credit to prevent double taxation.

Check your city or county government website or ask your employer's payroll department what local income tax rate applies to you. This information should also appear on your pay stub.

How to file Kentucky state income tax

You file Kentucky state income tax using Form 740, the Kentucky Individual Income Tax Return. You submit this form to the Kentucky Department of Revenue along with your federal tax return, usually by April 15 each year. If you file your federal return electronically, you can also file your Kentucky return electronically through an approved tax software provider.

If you owe Kentucky tax, you pay it when you file. If you had too much withheld during the year, you receive a refund. The Kentucky Department of Revenue processes refunds, though the timeline depends on whether you filed electronically or by mail and whether you chose direct deposit.

If you did not have enough tax withheld and you owe a balance, you can pay online through the Department of Revenue website, by mail, or through an approved payment processor. Paying late results in penalties and interest, so file on time even if you cannot pay the full amount when ready.

Who must file a Kentucky return

You must file a Kentucky return if you are a resident and your income exceeds the filing threshold. For 2024, that threshold is $2,860 for single filers and $5,720 for married couples filing jointly — the same as the standard deduction. If you earned more than these amounts, you file.

Non-residents who earned Kentucky income must also file, even if they live in another state. This includes people who worked in Kentucky for part of the year or received income from Kentucky sources like rental property or business activity.

If you are claimed as a dependent on someone else's return, the filing threshold may be different. Check the Kentucky Department of Revenue website or your tax software for the specific rule that applies to your situation.

Frequently Asked Questions

Does Kentucky tax Social Security benefits?

No. Kentucky does not tax Social Security benefits at all, regardless of your age or total income. This is one of the few types of income that receives complete protection from state taxation.

What if I moved to Kentucky partway through the year?

You file as a part-year resident and pay Kentucky tax only on income earned while you lived in the state. You will need to show your move date and provide documentation of when you established residency. Your tax software or the Kentucky Department of Revenue can walk you through the calculation.

Can I deduct federal income tax paid on my Kentucky return?

No. Kentucky does not allow you to deduct federal income tax as an itemized deduction. You can only deduct state and local taxes up to $10,000 on your federal return, which is a federal rule, not a Kentucky one.

What happens if I do not file a Kentucky return when I owe tax?

The Kentucky Department of Revenue can assess penalties and interest on unpaid tax, and the debt can affect your ability to renew a driver's license or professional license. Filing late is better than not filing at all, because the penalty for filing late is smaller than the penalty for not filing.

Is there a Kentucky earned income tax credit?

Kentucky does not have its own earned income tax credit. You may be able to claim the federal Earned Income Tax Credit if your income is low enough, which reduces your federal tax liability. Check the IRS website or your tax software to see if you may have access to.