Kentucky State Tax Guide

Bottom Line

Middle-Class Families: Not Tax-Friendly (Go to the Kiplinger Tax Map for Middle-Class Families)
Retirees: Mixed Tax Picture (Go to the Kiplinger Tax Map for Retirees)

Kentucky's 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 future state flat tax rate cuts are possible). There's also an inheritance tax.

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 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.

If certain revenue and budget conditions are met, the state rate will be reduced to 4.5% beginning in 2023. Further 0.5% reductions are possible in future years if the same 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 $851 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.

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).