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Kentucky State Taxes: What You’ll Owe in the 2026 Tax Season

AARP

Published April 10, 2026

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Kentucky is among the 15 states that have a flat income tax rate. The state’s income tax rate for the 2025 tax year is 4 percent, but the rate drops to 3.5 percent beginning in the 2026 tax year. Kentucky does not tax Social Security benefits, has no estate tax and provides a homestead exemption for certain homeowners who are 65 or older or are disabled. Overall, it ranks No. 25 on the Tax Foundation’s 2026 State Tax Competitiveness Index.

The big picture:

Income tax: For the 2025 tax year, Kentucky has a flat 4 percent individual income tax, but some local jurisdictions impose their own income taxes as well. For 2026 and beyond, the state flat tax rate drops to 3.5 percent.
Property tax: The state’s average property tax rate on owner-occupied homes is 0.74 percent of assessed value, according to the most recent data from the Tax Foundation. Actual rates vary by county.
Sales tax: Kentucky charges a 6 percent statewide sales tax and does not allow additional local sales taxes.

How is income taxed in Kentucky?

For the 2025 tax year, the state’s individual income tax rate is 4 percent. It is applied to taxable income after standard or itemized deductions. The flat income tax rate drops to 3.5 percent for the 2026 tax year and beyond.

Many counties also collect occupational taxes, imposed as a percentage of payroll, that can range from 0.5 percent to 2.5 percent. Find which counties impose occupational taxes here.

There are four common income tax credits for individuals when they file their return:

Personal credits: A $40 tax credit is available to each person 65 or older; an additional $40 is available to those who are legally blind. Kentucky National Guard members may also claim a $20 tax credit; military reserve members do not qualify.
Family size tax credit: This credit is designed to reduce tax liability for low-income individuals and families. For those with incomes equal to or below 100 percent of the federal poverty level, the tax credit is equal to their entire tax liability — meaning they do not owe taxes. In 2025, that threshold was $15,650 for an individual and $32,150 for a family of four. See the 2025 federal poverty levels by family size here. For those with incomes ranging from 100 percent to 133 percent of the federal poverty level, the tax credit is equal to a percentage of their tax liability. Read about this credit here.
Education tuition tax credit: Kentucky residents can get a tax credit worth 25 percent of whatever they qualify for under the federal American Opportunity Tax Credit or Lifetime Learning Credit. This credit is only for undergraduate studies and starts to phase out if their income is higher. It can be used for most college or higher-education programs in Kentucky.
Child and dependent care credit: Kentucky taxpayers can claim a child and dependent care credit on line 24 of Form 740 or Form 740-NP (the state’s main income tax forms) by entering the amount of the federal credit from federal Form 2441 and multiplying by 20 percent.

Learn more about the available tax credits here.

What about investment income?

Kentucky treats investment income the same as other forms of ordinary income for state tax purposes. For the 2025 tax year, that means it is taxed at the flat 4 percent rate.

Does Kentucky tax Social Security benefits?

No, Social Security benefits are fully exempt from income taxes.

How about other pension or retirement income?

Up to $31,110 in taxable pension or retirement income is excluded from taxation. Once retirement income exceeds that dollar amount, the excess becomes subject to state income tax.

Residents may exclude more than $31,110 if they are retired from federal, commonwealth or local government service and part of their pension income is based on government service performed before Jan. 1, 1998.

Kentuckians can complete Schedule P Kentucky Pension Income Exclusion to determine how much of their pension income is taxable, and they can use the Schedule P calculator to determine their exempt percentage.

How is property taxed in Kentucky?

The amount Kentuckians pay in property taxes annually depends on the assessed value of their property and the tax rates levied at the state and local levels.

Kentucky law requires the state to lower its real property tax rate if total property values across the state increase by more than 4 percent from the year before. Because of this rule, the rate has dropped over time, from 31.5 cents to 10.6 cents per $100 of value in 2025.

Every county has a general county tax rate and a school district tax rate; the latter is set by the local school board. Some counties have more than one school district, but homeowners pay taxes to only one of them. Counties may also have other districts, such as library, soil conservation, extension or fire.

The average property tax rate on owner-occupied homes in Kentucky is 0.74 percent, although actual rates vary by county, according to the most recent data available from the Tax Foundation. Property taxes rates range from 0.17 percent in Green County to 1.06 in Campbell County. The lowest median property tax paid was $414 in Wolfe County, and the highest was $3,519 in Oldham County.

What about sales and other taxes?

Sales and use tax: Kentucky’s sales and use tax is 6 percent; there are no additional local sales taxes. Sales tax is charged on retail sales of physical goods, digital products and some services. Use tax is charged on goods, digital products and some services purchased outside Kentucky for storage, use or consumption in the state. For example, people who buy items such as clothes, furniture or electronics from catalogs, online stores or shops outside of Kentucky may need to pay a use tax. Learn more about the use tax here. Common exemptions from the sales tax are grocery food, residential utilities and prescription drugs.
Gas tax: Gasoline is taxed at 25 cents per gallon, and diesel is taxed at 22 cents per gallon. In addition, there is a 1.4-cent-per-gallon environmental fee on motor fuels.
Vehicle tax: Kentucky collects a 6 percent tax on every motor vehicle — either when ownership is transferred or a vehicle is registered for the first time in the state. The state also administers an annual property tax on motor vehicles based on their value, and it is payable to the owner’s county clerk. The state tax rate for nonhistoric vehicles is 45 cents per $100 of value, while the state tax rate for historic motor vehicles is 25 cents per $100 of value.
Alcohol taxes: Kentucky taxes distilled spirits at $9.56 per gallon, beer at 89 cents per gallon and wine at $3.82 per gallon, according to the Tax Foundation.
Lottery taxes: Kentucky generally treats lottery winnings and gambling winnings as ordinary taxable income at a rate of 4 percent for the 2025 tax year.

Will my estate or my heirs have to pay inheritance and estate tax in Kentucky?

There is no estate tax in Kentucky.

An inheritance tax is imposed on a beneficiary’s right to receive property from a deceased person. The tax amount depends on the beneficiary’s relationship to the decedent and the value of the property — closer relatives receive larger exemptions and lower rates. For example, spouses, children, grandchildren and other close relatives are exempt from the inheritance tax. All transfers of property owned by a deceased Kentucky resident are taxable except the transfer of real estate in other states. In addition, the transfer of real and personal property located in Kentucky and owned by a nonresident may also be taxed. Learn more here.

Are there any tax breaks for older Kentucky residents?

Homeowners 65 and older or who are totally disabled may qualify for a homestead exemption if they meet certain requirements. The exemption lowers the home’s assessed value, and property taxes are based only on the amount left after the exemption is deducted. The value of the exemption for 2025-2026 is $49,100, so someone with a house worth $200,000 would pay property taxes based on a taxable assessment of $150,900. Learn more here.

Is military pay taxed in Kentucky?

Kentucky does not tax active-duty military pay. All compensation received by members of the Armed Forces while on active duty may be excluded from Kentucky taxable income. The state extends the same tax benefits to a military spouse’s nonmilitary income when specific conditions are met.

For veterans, up to $31,110 of military pension income may be excluded from taxable income. It’s possible some taxpayers may be able to exclude more income and must fill out Schedule P Kentucky Pension Income Exclusion form.

Learn more about how Kentucky treats military tax issues here.

What is the deadline for filing Kentucky taxes in 2026?

The deadline for filing 2025 taxes is April 15, 2026.

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