Bottom Line
Middle-Class Families: Not Tax-Friendly (Go to the Kiplinger Tax Map for Middle-Class Families)
Retirees: Tax-Friendly (Go to the Kiplinger Tax Map for Retirees)
Kentucky's current 5% flat tax, plus additional taxes on wages in some local jurisdictions, translates to a relatively high income tax burden for many residents of the state (although the rate drops to 4.5% in 2023 and future cuts are possible). There's also an inheritance tax.
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However, on the bright side, the Bluegrass State prevents local governments from adding to the state's comparatively modest 6% sales tax rate. The property tax burden is below average, which also helps.
Kentucky Income Taxes
Kentucky Income Tax Range
Kentucky currently 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 their boundaries.
The state rate is reduced to 4.5% beginning in 2023. Further 0.5% reductions are possible in future years if certain revenue and budget conditions are met and the state legislature authorizes a reduction.
Kentucky Taxation of Social Security Benefits
Social Security benefits are not taxed by the state.
Kentucky Tax Breaks for Other Retirement Income
Up to $31,110 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.
Kentucky Sales Tax
6% state levy. No local taxes.
Groceries: Exempt
Clothing: Taxable
Motor Vehicles: Exempt if 6% motor vehicle usage tax is paid
Prescription Drugs: Exempt
Kentucky Real Property Taxes
In Kentucky, the median property tax rate is $797 per $100,000 of assessed home value.
Kentucky Property Tax Breaks for Retirees
For homeowners 65 and older, $40,500 of the assessed value of residential property is exempt from state taxes for 2021 and 2022. The exemption amount goes up to $46,350 for 2023 and 2024.
Kentucky Motor Fuel Taxes
Gasoline: 26¢ per gallon.
Diesel: 23¢ per gallon.
Kentucky Sin Taxes
Cigarettes: $1.10 per pack
Snuff: $0.19 per unit of 1.5 ounces
Chewing tobacco: Approximately $0.05 per ounce
Other tobacco products: 15% of wholesale price
Vapor products: $1.50 per cartridge for closed systems; 15% of wholesale price for other products
Beer: $0.08 per gallon
Wine: $0.50 per gallon
Liquor: $1.92 per gallon
An 11% sales tax is also charged at the wholesale level on liquor; the rate for wine and beer is 10%.
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).
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