Go to Retiree Tax Map Kentucky Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line 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.IRAsQualifies for retirement-income exclusion of up to $41,110.401(k)s and Other Defined-Contribution Employer Retirement PlansQualifies for retirement-income exclusion of up to $41,110.Private PensionsQualifies for retirement-income exclusion of up to $41,110.Public PensionsQualifies 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.