Navigating the complexities of state taxes can be daunting, but understanding Kentucky's tax landscape is essential for residents and newcomers alike.
In this guide, we'll explore key components of The Bluegrass State's tax system, from income and sales taxes to property taxes and retirement benefits.
Kentucky state tax: Overview
Kentucky offers a flat personal income tax, local wage taxes, and an inheritance tax, but it keeps things simple by preventing local sales tax hikes. Property taxes are among the lowest in the region, making Kentucky appealing for homeowners.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
With talk of possible tax reform, there could be even more changes on the horizon to make the state more attractive to businesses and residents.
For instance, the Bluegrass State has voted to lower its income tax rate. For more information, see Kentucky Has a New Income Tax Rate: What to Know.
Here's more on Kentucky taxes.
[Data for this state tax guide was gathered from a number of sources including the Census Bureau, the state’s government website, the Sales Tax Handbook, and the Tax Foundation. Property taxes are cited as a rate percentage rather than the assessed value.]
Kentucky income tax rate
Kentucky generally has a flat income tax rate for 2025 of 4.0%. Lawmakers voted earlier this year to lower the rate to 3.5%, which will take effect in January 2026.
Kentucky retirement taxes
- Social Security: Not taxable
- Pensions: Partially Taxable
- 401(k) and IRA Distributions: Taxable
- Railroad Retirement benefits are also exempt from tax in Kentucky.
Note: A $31,110 deduction is available in Kentucky for state, private and military retirement plans.
Kentucky sales tax
Kentucky's state sales tax rate is 6%. There are no local taxes in the state.
Groceries: Exempt
Clothing: Taxable
Motor Vehicles: Exempt if 6% motor vehicle usage tax is paid
Prescription Drugs: Exempt
How much are property taxes in Kentucky?
In Kentucky, the average property tax paid is 0.74% per assessed home value, according to the Tax Foundation.
Kentucky Property Tax Breaks for Retirees
For homeowners 65 and older, $49,100 of the assessed value of residential property is exempt from Kentucky taxes for 2024.
Kentucky gas tax
Product | Tax Amount |
|---|---|
Gasoline | $0.25 per gallon |
Diesel | $0.22 per gallon |
Source: The Sales Tax Handbook
Kentucky taxes on alcohol and tobacco
Kentucky tobacco taxes
Product | Tax Amount |
|---|---|
Cigarettes | $1.10 per pack of 20 |
Snuff | $0.19 per unit of 1.5 ounces |
Other tobacco products | 15% of wholesale price |
Source: The Sales Tax Handbook
Kentucky alcohol taxes
Product | Tax |
|---|---|
Beer | $0.08 per gallon |
Wine | $0.50 per gallon |
Liquor | $1.92 per gallon |
Note: A 10.75% sales tax is also charged at the wholesale level.
Source: The Sales Tax Handbook
Kentucky estate and inheritance taxes
Kentucky has an inheritance tax, but the decedent's spouse, parents, children, grandchildren, and siblings are exempt.
- 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).
Related Content
-
IRS 1099-K Threshold for 2025 Taxes Just Changed: What to Know NowTax Law After years of uncertainty and changing requirements, the 1099-K reporting rules for 2025 are now set, and the thresholds have changed since last year.
-
The 'Permission to Spend' Rules of Retirement SpendingHere’s how to spend guilt-free when you are in retirement.
-
IRS 1099-K Threshold for 2025 Taxes Just Changed: What to Know Now
Tax Law After years of uncertainty and changing requirements, the 1099-K reporting rules for 2025 are now set, and the thresholds have changed since last year.
-
Ohio Property Tax Shock: Why Your New Assessment Is So High (And What Comes Next)State Taxes Higher home valuations in Ohio have led to homeowner property tax relief. But is it enough?
-
Health Insurance Tax Credits and the Government Shutdown: What to KnowTax Credits Previous shutdowns have occurred for various reasons, including border wall funding. But this time, the standoff centers in part on health care and taxes.
-
Florida Residents Could Soon Get Property Tax ReliefProperty Tax The push for a solution to end high property taxes could lead to significant tax cuts in the Sunshine State next year.
-
New Tax Rules: Income the IRS Won’t Touch in 2025Income Taxes From financial gifts to Roth withdrawal rules, here’s what income stays tax-free under the new Trump 2025 tax bill, and some information on what’s changed.
-
Three Popular Tax Breaks Are Gone for Good in 2026Tax Breaks Here's a list of federal tax deductions and credits that you can't claim in the 2026 tax year. Plus, high-income earners could get hit by a 'surprise' tax bill.
-
Tax Brackets 2025 Quiz: How Much Do You Know?Quiz Test your knowledge of IRS rules that impact how much money you keep in your wallet.
-
About 40% of Heirs Say They Can’t Afford an Inherited HomeEstate Planning The ‘Great Wealth Transfer’ may not help with high property taxes, soaring homeownership costs, and liquidity issues in 2025.
