Tool | November 2017

State-by-State Guide to Taxes on Retirees

Kentucky

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Map of Kentucky

Most Tax-Friendly

The Bluegrass State exempts Social Security benefits from state income taxes, plus up to $41,110 per person of a wide variety of retirement income, including public and private pensions and annuities. Personal income tax rates range from 2% to 6%. A 6% sales tax is imposed at the state level. Homeowners 65 and older qualify for a homestead provision that exempts part of the value of their property from state taxes. It's one of Kiplinger's top ten most tax-friendly states for retirees

State Sales Tax

State levy of 6%.

Income Tax Range

Low: 2% (on less than $3,000 of taxable income)

High: 6% (on more than $75,000 of taxable income)

Effective income tax rate: 5.3%/individual, 5.7%/joint

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Railroad Retirement benefits are exempt. Kentucky offers a retirement-income exclusion of up to $41,110, which includes distributions from IRAs and 401(k)s as well as private pensions and annuities. There is an additional exclusion for qualified military, civil-service, and state and local government pensions.

IRAs

Qualifies for retirement-income exclusion of up to $41,110.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Qualifies for retirement-income exclusion of up to $41,110.

Private Pensions

Qualifies for retirement-income exclusion of up to $41,110.

Public Pensions

Qualifies for retirement-income exclusion of up to $41,110. Railroad retirement benefits are exempt. There is an additional exclusion for qualified military, civil-service, and state and local government pensions.

Property Taxes

Kentucky has a homestead exemption on the assessed value of a qualifying single-unit residential property, which is adjusted every two years according to the cost-of-living index. The median property tax on Kentucky's median home value of $123,800 is $1,054.

Tax breaks for seniors: For homeowners 65 and older or totally disabled, $36,900 of the assessed value of their property is exempt from state taxes under the homestead provision for 2016.

Inheritance and Estate Taxes

Kentucky has an inheritance tax, but all Class A beneficiaries (spouse, parent, child, grandchild, brother and sister) are exempt. Other beneficiaries are subject to inheritance tax rates ranging from 4% to 16%. There is no estate tax.