Overview of Kentucky Taxes
The Bluegrass State imposes a progressive income tax system with six tax brackets. The income rates are the same no matter what filing status you are, but wealthy individuals pay higher marginal tax rates than lower income individuals do.
Aside from state and federal taxes, Kentucky residents are subject to local taxes, called occupational taxes in the state. For most counties and cities in Kentucky, this is a percentage of taxpayers’ wages.
This calculator reflects the 2018 federal withholding tax changes.
Click here to learn more about how the Trump Tax Plan will affect you.
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- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
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Kentucky Paycheck Calculator
Photo credit: ©iStock.com/Walter Galloway
Kentucky Paycheck Quick Facts
How Your Kentucky Paycheck Works
Whenever you get paid, regardless of which state you call home, your employer will withhold federal income and FICA taxes from your paycheck. Federal income taxes will go to the IRS, where it counts toward your annual income taxes. FICA taxes are comprised of Medicare and Social Security taxes. Each month, you pay into these systems so you can reap the benefits during retirement. Medicare tax is 1.45% of your wages and Social Security is 6.2%. If your salary is over $200,000, your earnings in excess of $200,000 are subject to an additional 0.9% in Medicare tax.
Are you wondering how much you pay in federal income taxes? That depends on the information that you filled out on your W-4 form. This is the form that tells your employer how much to withhold in taxes, therefore you need to fill out a new one whenever you start a new job or if you need to make any changes during the year.
In December 2017, President Trump signed a new tax plan into law. The IRS has since released updated tax withholding guidelines and taxpayers should have seen changes to their paychecks, to reflect the new tax plan, starting in February 2018. For the time being, taxpayers do not need to fill out a new W-4. Employers will use the withholdings on your current form.
One factor that will affect the amount of taxes withheld from your pay is your marital status. Whether you’re single, a qualifying head of household (meaning you’re the only person earning money in your family) or married filing jointly or separately affects how much you owe in taxes as well as how many withholding allowances you qualify for. Having dependents also affects your allowances.
As a general rule, the more allowances you claim on your W-4 form, the less taxes will be taken out and the bigger your paychecks will be. But you want to exercise caution here; if you claim more allowances that you’re supposed to, you will end up underpaying your taxes all year and will be presented with a big tax bill during tax season. You could even face underpayment penalties.
Almost everyone has to pay federal and FICA taxes, but there are other monies that you may opt to have taken out of your paycheck. If you have health or life insurance policies through your employer, those premiums are deducted from your wages. Similarly, if you contribute to company-sponsored retirement plans like a 401(k) or Roth IRA, that money is subtracted from your paycheck. The same goes for any money you choose to put in a Health Savings Account, Flexible Spending Account or commuter benefit program.
Kentucky Median Household Income
Kentuckians are taxed at a progressive tax rate which is the same no matter your filing status. You’ll pay 2% in taxes in your first $3,000 of taxable income; 3% up to $4,000; 4% up to $5,000; 5% up to $8,000; 5.8% up to $75,000 and 6% over that.
You will also be charged local income taxes, called occupational taxes in the state. Sorry to say this but not only will you be charged county taxes, but if you live on one of the cities within a county that also charge local taxes, you’ll be taxed for both. Most counties and cities charge a percentage, ranging from 0.05% to 3.00%. These taxes are levied on your wages, not your taxable income.
Income Tax Brackets
|Kentucky Taxable Income||Rate|
|$0 - $3,000||2.00%|
|$3,000 - $4,000||3.00%|
|$4,000 - $5,000||4.00%|
|$5,000 - $8,000||5.00%|
|$8,000 - $75,000||5.80%|
Local Income Taxes
|Lexington Fayette Urban County||2.25%|
How You Can Affect Your Kentucky Paycheck
If you want a bigger paycheck, you can start by asking your employer for a raise or working additional shifts if you are eligible for overtime pay.
Modifying your pre-tax contributions can also help your bottom line. Admittedly your paychecks will be smaller if you go this route, but you are actually sheltering more of your income from the tax man.
Think about it. If you contribute money to retirement accounts like a 401(k) or 403(b) or to a Health Savings Account (HSA) or Flexible Spending Account (FSA), that money will come of your paycheck before taxes are taken out. In other words, you are actually lowering your taxable income by taking advantage of these benefits, which in turn lowers how much you owe in taxes.
There are a few additional things to keep in mind with pre-tax accounts. If your employer matches your contributions to a 401(k), you should make sure that you put enough money in there to take full advantage of the match. Also your money grows tax-free while it’s in a 401(k), which is a nice perk. If you elect to contribute to a HSA or FSA, remember that they do not roll over from year to year so anything you put in and don’t use, you lose.
If you have to pay a big tax bill every year, you should check your W-4 form to make sure that you aren’t claiming the wrong number of allowances. If you’re claiming too many, this could lead your employer to withhold too little in taxes throughout the year and then you have to make up that balance in April. You can fill out a new W-4 if you want to claim fewer allowances. You can also elect to have a dollar amount taken out of each of your paychecks if you anticipate having to a pay a lot of taxes. Decide what you want that amount to be, say $50 a paycheck, and write that on the correct line of the W-4. It might seem odd to choose to get smaller paychecks, but remember you will owe those taxes anyway, so you’re simply spreading it out and paying it off throughout the year, instead of facing a lump sum in April.
If learning the ins and outs of Kentucky’s tax structure has you wanting to become a resident, take a look at our Kentucky mortgage guide to learn about buying a home in the state. This guide contains everything you need to know about mortgages in Kentucky, whether it be for a new home or refinancing your current one.
Kentucky Top Income Tax Rate
Most Paycheck Friendly Places
SmartAsset's interactive map highlights the most paycheck friendly counties across the country. Zoom between states and the national map to see data points for each region, or look specifically at one of the four factors driving our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology Our study aims to find the most paycheck friendly places in the country. These are places in the country with favorable economic conditions where you get to keep more of the money you make. To find these places we considered four different factors: semi-monthly paycheck, purchasing power, unemployment rate and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances. We applied relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties we assumed a $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment rate index that shows the counties with the lowest unemployment. For income growth, we calculated the annual growth in median income over five years for each county and indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2016 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics