What Taxes Are You Required to Pay in Kentucky?

Kentucky residents and businesses pay state and local taxes that fund public services. Understanding these taxes is important for financial planning.

Kentucky Individual Income Tax

Individuals earning income in Kentucky are generally subject to the state’s individual income tax, applying to sources like wages, salaries, business income, interest, and dividends. Calculation often starts with federal Adjusted Gross Income (AGI), with specific Kentucky additions and subtractions.

Kentucky uses a flat income tax rate of 4% for the 2024 tax year, filed in 2025. This rate applies uniformly to all income levels. Legislation is in place to potentially lower it to 3.5% effective January 1, 2026, contingent on specific fiscal conditions.

Taxpayers can reduce their taxable income through a standard deduction. For 2025, the standard deduction is $3,270 for single filers. Kentucky also allows different filing statuses, and married couples are not required to use the same filing status as on their federal return, with many finding it beneficial to file as Married Filing Separately on a combined return.

The standard deadline for filing Kentucky individual income tax returns is April 15th. Taxpayers can file their returns electronically or submit paper forms, and any tax owed can be remitted through various payment methods.

Kentucky Sales and Use Tax

Kentucky imposes a 6% sales tax on the retail sale of most tangible personal property and certain services. There are no additional local sales taxes imposed by cities or counties.

A “use tax” complements the sales tax, applying when goods are purchased outside Kentucky for use within the state, and Kentucky sales tax was not collected. This ensures purchases from out-of-state retailers are taxed comparably to those from Kentucky businesses. Individuals are responsible for remitting this use tax if not paid at purchase.

Several items are exempt from Kentucky sales tax. Common exemptions include prescription drugs, certain food items, agricultural machinery, and manufacturing equipment.

Sales tax is collected by merchants at the time of sale. For use tax, individuals are responsible for reporting and paying it, often annually when filing their Kentucky individual income tax return.

Kentucky Property Taxes

Property taxes in Kentucky are primarily levied at the local level by counties, cities, and school districts, funding local services. Property subject to taxation includes real property (land and buildings) and tangible personal property (like business equipment).

Property is assessed for tax purposes based on its fair cash value. The local Property Valuation Administrator (PVA) in each county assesses most real property.

Kentucky law provides for exemptions or reductions. The Homestead Exemption is available to homeowners aged 65 or classified as totally disabled. For the 2025-2026 assessment years, this exemption allows a deduction of $49,100 from the assessed value of an eligible home.

Property tax assessment occurs annually, based on the property’s value as of January 1st. Tax bills are usually sent in the fall, with payment deadlines towards the end of the year. Some localities offer a discount for early payment, while penalties may apply to delinquent payments.

Other Notable Kentucky Taxes

Kentucky has other taxes beyond income, sales, and property taxes. These are specific to certain transactions or activities.

A Motor Vehicle Usage Tax is imposed when a vehicle is titled or transferred in Kentucky. This one-time tax is levied at 6% of the vehicle’s retail price.

Many cities and counties levy a Local Occupational License Tax, sometimes called a “payroll tax” or “net profits license fee.” This local tax is imposed on individuals earning income or businesses operating within their jurisdiction, with rates varying by locality.

Excise taxes are applied to specific goods or services, typically included in the purchase price. In Kentucky, common excise taxes include those on motor fuels, tobacco products, and alcoholic beverages.

Kentucky also has an Inheritance Tax, which applies to property inherited by certain beneficiaries. Exemptions and rates vary based on the beneficiary’s relationship to the deceased.