Kentucky Tax: Guide to Income, Sales, Property, and Retirement Taxes

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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.

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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

Capitol Building of the Commonwealth of Kentucky

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 took effect as of 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

Still life of a small shopping cart with $1 USD bills

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% (0.73% in 2026) 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 2025 and 2026.

Kentucky gas tax

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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

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Product	Tax Amount
Cigarettes	$1.10 per pack of 20
Other tobacco products	15% of wholesale price

Source: The Sales Tax Handbook

Kentucky alcohol taxes

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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).

Kelley R. Taylor is the senior tax editor at Kiplinger.com, where she breaks down federal and state tax rules and news to help readers navigate their finances with confidence. A corporate attorney and business journalist with more than 20 years of experience, Kelley has helped taxpayers make sense of shifting U.S. tax law and policy from the Affordable Care Act (ACA) and the Tax Cuts and Jobs Act (TCJA), to SECURE 2.0, the Inflation Reduction Act, and most recently, the 2025 “Big, Beautiful Bill.” She has covered issues ranging from partnerships, carried interest, compensation and benefits, and tax‑exempt organizations to RMDs, capital gains taxes, and energy tax credits. Her award‑winning work has been featured in numerous national and specialty publications.