State-by-State Guide to Taxes on Retirees

Printer-friendly version

NICKNAME
The Bluegrass State

BOTTOM LINE: TAX-FRIENDLY
Kentucky exempts Social Security benefits from state income taxes, plus up to $41,110 per person of a wide variety of retirement income, including public and private pensions and annuities. Personal income-tax rates range from 2% to 6%. A 6% sales tax is imposed at the state level only. Homeowners 65 and older qualify for a homestead provision that exempts part of the value of their property from state taxes.

STATE SALES TAX
6% (food, prescription drugs, residential utilities except telephone, and medical supplies are exempt)

INCOME-TAX RANGE
Low: 2% (on less than $3,000 of taxable income)
High: 6% (on more than $75,000 of taxable income)

SOCIAL SECURITY
Social Security benefits are not taxed.

EXEMPTIONS FOR OTHER RETIREMENT INCOME
Railroad Retirement benefits are exempt. Kentucky offers a retirement-income exclusion of up to $41,110, which includes distributions from IRAs and 401(k)s as well as private pensions and annuities. There is an additional exclusion for qualified military, civil-service, and state and local government pensions.

PROPERTY TAXES
Property in Kentucky is subject to state and local property tax. The state property-tax rate for 2011 is 12.2 cents per $100 of assessed value. Real property is assessed at 100% of fair market value. Kentucky has a homestead exemption on the assessed value of a qualifying single-unit residential property, which is adjusted every two years according to the cost-of-living index.

Tax breaks for seniors: For homeowners 65 and older or totally disabled, $34,000 of the assessed value of their property is exempt from state taxes under the homestead provision for 2012.

INHERITANCE AND ESTATE TAXES
Kentucky has no estate tax. It has an inheritance tax, but all Class A beneficiaries (spouse, parent, child, grandchild, brother and sister) are exempt. Other beneficiaries are subject to inheritance-tax rates ranging from 4% to 16%.

Visit RetirementLiving.com for a complete rundown of taxes in Kentucky.

States More Tax-Friendly for Retirees

• Our picks of the 10 most tax-friendly states for retirees
• The nine states with no income tax
• The five states with no sales tax
• The five states with the lowest sales taxes (including averages of county/city sales taxes)
• The 36 states that don't tax Social Security benefits

States Less Tax-Friendly for Retirees

• Our picks of the 10 least tax-friendly states for retirees
• The seven states with the highest income tax rate (based on highest tax bracket)
• The five states with the highest sales taxes (including average county/city sales taxes)
• The 22 states that impose their own estate taxes or inheritance taxes