Kentucky state taxes at a glance
| Individual income tax | Flat-rate income tax |
|---|---|
| Rate structure | A flat 3.5% income tax rate for 2026, down from 4% in 2025 under a trigger-based phase-down, plus local occupational license taxes in many cities and counties. Verify current-year figures. |
| Tax agency | Kentucky Department of Revenue |
| Main individual return | Form 740 (full-year residents); Form 740-NP (nonresidents and part-year residents) |
| Local income taxes | Many cities, counties and school districts levy occupational license taxes on wages or net profits. These are local taxes filed with the local tax office, not on Form 740. |
| Sales tax | A 6% state rate with no local sales taxes, so the rate is the same statewide, although some items are exempt. |
| Property tax | Real property taxes are set by local governments and the state; Kentucky also taxes motor vehicles as property, generally collected at registration. |
| Retirement & Social Security | Kentucky does not tax Social Security. Other retirement income is partly excluded up to a dollar limit; confirm the current limit with the Department. |
Verify current-year figures: state rates, brackets, credits and filing rules change. Treat this page as a starting orientation and confirm details on the Kentucky Department of Revenue website.
How Kentucky income tax works
Kentucky’s individual income tax rate decreased from 4% to 3.5% on January 1, 2026, according to Tax Foundation, as a result of triggers originally adopted in 2022 and ratified by the legislature in H.B. 1 of 2025. The rate cuts are conditional on revenue, so check the Department of Revenue’s current-year instructions for the rate that applies to your return rather than relying on a past figure. Kentucky uses a single rate with a standard deduction that Tax Foundation notes is not doubled for married couples filing jointly; many married taxpayers therefore file separately to claim the deduction twice.
Local taxes matter in Kentucky. Many cities, counties and school districts levy occupational license taxes on wages and net profits. Louisville, Lexington and many smaller cities have them, and some counties levy on work done in the county even if you live elsewhere. The Department of Revenue is explicit that these local taxes are not reported on the state Form 740; they are filed with the local tax office where the work is performed. Tax Foundation counts Kentucky among the ten or so states with county- or city-level income taxes (averaging roughly 0.9% of AGI), so budget for them if you work in a city that has one.
Kentucky’s sales tax is a flat 6% with no local add-ons. For commuters, Kentucky has income-tax reciprocity agreements with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin, which means residents of those states who work in Kentucky generally owe tax only to their home state, per Tax Foundation’s reciprocity table. Read is Social Security taxable? for the federal side of retirement income; Kentucky does not tax benefits.
Filing your Kentucky return and free options
The Department of Revenue says you can file your current-year Kentucky return free through KY File, but you must complete your federal return first, since KY File starts from federal information. The Department also publishes free-file software offers through the Free File Alliance, with each provider setting income and other eligibility rules; use the Department’s links so your state return is included without fees.
Because local occupational taxes are separate, check whether your employer withholds them and whether you need to file a local return directly. If you owe state tax and cannot pay, see what to do if you can’t pay. Our free filing hub covers the federal return.
For the federal side, see our guides to free federal filing options and the complete guide to filing taxes.
Things Kentucky residents often ask about
- Local occupational taxes: separate from the state return and filed with the local tax office; do not report them on Form 740.
- Standard deduction not doubled for joint filers: married couples sometimes file separately to claim it twice; compare both ways.
- Reciprocity: commuters from IL, IN, MI, OH, VA, WV and WI owe tax in their home state only.
- KY File needs your federal return first: complete federal before starting the state return.
- Vehicle property tax: Kentucky taxes vehicles as property, typically at registration.
Official Kentucky links
- Kentucky Department of Revenue
- Kentucky: free electronic filing (KY File)
- Kentucky: free file software
- Federation of Tax Administrators: State tax agencies
Frequently asked questions
What is the Kentucky income tax rate?
A flat 3.5% for 2026, down from 4% in 2025. Check the Department of Revenue’s current instructions because later reductions depend on revenue triggers.
Is there free state filing in Kentucky?
Yes. KY File is free for the current year but requires that you complete your federal return first. Free File software offers are also listed on the Department’s site.
What is a Kentucky occupational license tax?
A local tax on wages or net profits levied by some cities, counties and school districts. It is filed with the local tax office, not on Form 740.
General information only — not tax, legal or financial advice. Tax figures change every year; verify the current numbers at IRS.gov or with a qualified professional. Read the full disclaimer.