How Much Is Kentucky State Income Tax?

Kentucky’s state income tax system requires residents and non-residents earning income within the state to file and pay taxes annually. This overview details Kentucky’s income tax rate, defines taxable income, explores methods to reduce tax liability, and outlines procedures for filing and paying state income tax.

Kentucky’s Income Tax Rate

Kentucky imposes a flat income tax rate on an individual’s taxable income. For the 2024 tax year, this rate is 4.0%. This flat rate represents a reduction from previous years. Kentucky transitioned to a flat income tax system in 2019.

The current rate applies uniformly to all taxable income, simplifying calculation compared to a tiered system. This means every taxpayer pays the same percentage of their taxable income, regardless of total earnings. The state has a long-term objective to further reduce and eventually eliminate the individual income tax. While the rate for 2025 remains at 4.0%, lawmakers have voted to lower it to 3.5% effective January 1, 2026, contingent on meeting specific fiscal targets.

Understanding Taxable Income

Kentucky’s individual income tax applies to all income earned by residents and to income earned by non-residents from Kentucky sources. Common sources of income subject to Kentucky income tax include wages, salaries, tips, and income from self-employment. Interest, dividends, capital gains, and business income are also typically included in Kentucky taxable income.

Most retirement income, such as pensions, annuities, and IRA distributions, is generally considered taxable. However, Kentucky provides a significant exclusion for this type of income, allowing taxpayers to exempt the first $31,110 of retirement income from state tax. This exclusion applies to both public and private pension plans. Certain types of income are exempt from Kentucky income tax, including Social Security benefits and active-duty military pay. Income earned by soldiers killed in the line of duty is also exempt for the year of death and the preceding year.

Reducing Your Tax Liability

Individuals can reduce their Kentucky income tax through various deductions and credits, which directly impact the final amount owed. Deductions lower the amount of income subject to tax, while credits reduce the actual tax bill dollar-for-dollar. For the 2024 tax year, all taxpayers are eligible for a standard deduction of $3,160. This amount is set to increase to $3,270 for the 2025 tax year.

Kentucky allows itemized deductions, which may differ from those permitted on federal returns. Examples of specific state-level deductions include health insurance premiums for self-employed individuals and certain medical expenses exceeding 7.5% of Kentucky adjusted gross income. The retirement income exclusion, which allows taxpayers to exclude up to $31,110 of eligible retirement income, also functions as a significant deduction.

Kentucky offers a range of tax credits that can lower a taxpayer’s liability. These include the nonrefundable Family Size Tax Credit, available to individuals and families based on their modified gross income and family size. For 2024, a family of four or more with a modified gross income of $31,200 or less may qualify, with varying thresholds for smaller family sizes.

The Child and Dependent Care Credit is another nonrefundable credit, calculated as 20% of the federal credit, with a maximum of $210 for one child or $420 for two or more children. Personal and dependency credits provide a $40 credit for each individual aged 65 or over or who is legally blind, with an $80 credit for those meeting both criteria. A $20 credit is also available for members of the Kentucky National Guard. Taxpayers may also claim an Education Tuition Credit, equal to 25% of the federal American Opportunity or Lifetime Learning Credits, and a credit for income taxes paid to another state on income also taxed by Kentucky.

Filing and Paying Your Kentucky Income Tax

Individuals who are full-year residents, part-year residents, or non-residents with income sourced to Kentucky are generally required to file a Kentucky income tax return. Filing requirement thresholds depend on factors such as modified gross income and Kentucky adjusted gross income. Even if a taxpayer does not meet the general filing requirements, they may still need to file to claim a refund of any Kentucky income tax withheld.

The annual deadline for filing Kentucky individual income tax returns and paying any tax due is typically April 15th. If this date falls on a weekend or holiday, the deadline shifts to the next business day. Extensions for filing are available, but interest may still accrue on any unpaid tax balance from the original April 15th due date.

Taxpayers have several options for submitting their returns and payments. Electronic filing is available through approved tax software or the Kentucky Department of Revenue’s online portal, KY File. Returns can also be filed by mail.

For payments, individuals can use the Kentucky Department of Revenue’s electronic payment application to make payments directly from a bank account (ACH debit) or by credit/debit card. Convenience fees, such as 2.75% for credit cards and 1.5% for debit cards, apply to card payments. Payments can also be made by mail using a check or money order, accompanied by the appropriate payment voucher.

Those anticipating owing more than $500 in tax after accounting for withholding and credits may be required to make estimated tax payments throughout the year, with quarterly due dates on April 15, June 15, September 15, and January 15 of the following year. If a taxpayer is unable to pay their full tax liability by the deadline, installment agreements may be requested from the Department of Revenue.