Go to Retiree Tax Map Kentucky Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line Mixed Tax Picture The Bluegrass State exempts Social Security benefits from state income taxes, plus up to $31,110 per person of a wide variety of retirement income, including public and private pensions and annuities. A modest 6% sales tax is imposed at the state level, and localities can’t add to it. What’s not to like? An inheritance tax. State Sales Tax State levy of 6%. Income Tax Range Kentucky has a flat income tax rate of 5%. Certain counties, cities and other local government entities (such as school boards) can levy an additional occupational license payroll tax on wages earned by employees working within its boundaries. According to the Tax Foundation, the average local occupational license payroll tax rate is 2.08%.Effective tax rate: 5% for single filers, 7.02% for joint filers. Social Security Benefits are not taxed. Exemptions for Other Retirement Income Up to $31,100 of income from private, government, and military retirement plans (including IRAs and 401(k) plans) is exempt. However, government retirement income attributable to service credits earned before 1998 is fully exempt without limits.Railroad Retirement benefits are also exempt. Property Taxes In Kentucky, residents pay an average $925 in taxes per $100,000 of assessed home value.Tax breaks for seniors: For homeowners 65 and older, $39,300 of the assessed value of residential property is exempt from state taxes under the homestead provision for 2019. Vehicle Taxes A 6% tax is collected at registration. Additionally, the state vehicle property tax rate is $0.45 per $100 of car value; counties and other localities impose an additional levy. Inheritance and Estate Taxes Kentucky has an inheritance tax, but all Class A beneficiaries (spouse, parent, child, grandchild, brother and sister) are exempt. But nieces, nephews, daughters-in-law, sons-in-law, aunts, uncles and great-grandchildren are taxed at rates ranging from 4% to 16%, depending on the value of the property inherited (the first $1,000 of property is exempt). All other heirs are taxed at rates ranging from 6% to 16% (their exemption is only for the first $500 of property).