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 $31,110 per person of a wide variety of retirement income, including public and private pensions and annuities. A modest 6% sales tax is imposed at the state level, and localities can’t add to it. Homeowners 65 and older qualify for a homestead provision that exempts part of the value of their property from state taxes. Kentucky is one of Kiplinger’s top ten most tax-friendly states for retirees State Sales Tax State levy of 6%. Income Tax Range Kentucky has a flat income tax rate of 5%. Localities can add to this; the average levy is 2.08%, according to the Tax Foundation. Social Security Benefits are not taxed. Exemptions for Other Retirement Income Kentucky offers a retirement-income exclusion of up to $31,110, which includes distributions from IRAs and 401(k)s as well as private pensions and annuities. Railroad Retirement benefits are exempt. There is an additional exclusion for qualified military, civil-service, and state and local government pensions. IRAsQualifies for retirement-income exclusion of up to $31,110.401(k)s and Other Defined-Contribution Employer Retirement PlansQualifies for retirement-income exclusion of up to $31,110.Private PensionsQualifies for retirement-income exclusion of up to $31,110.Public PensionsQualifies for retirement-income exclusion of up to $31,110. Railroad retirement benefits are exempt. There is an additional exclusion for qualified military, civil-service, and state and local government pensions. Property Taxes The median property tax on Kentucky’s median home value of $126,100 is $1,078.Tax breaks for seniors: For homeowners 65 and older, $37,600 of the assessed value of residential property is exempt from state taxes for 2018. Vehicle Taxes A 6% tax is collected at registration. Additionally, the state vehicle property tax rate is $0.45 per $100 of car value; counties and other localities impose an additional levy. 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%.