Kentucky Income Tax Calculator

Kentucky state tax quick facts State income tax: 5% Local income taxes: 0.015% - 3.55% Sales tax: 6% Property tax: 0.86% average effective rate Gas tax: 26 cents per gallon of regular gasoline, 23 cents per gallon of diesel

As of early 2018, the Bluegrass State has a flat income tax rate of 5%, a statewide sales tax of 6% and property taxes that average $1,120 annually. Both the sales tax and the property taxes are below the national averages, while the state income tax is right around the national average.

There are two unique aspects of Kentucky’s tax system. The first is local income tax rates, which are collected by both counties and cities, and range from 0.015% up to 3.55% of resident incomes. The second is its inheritance tax. Kentucky is one of just six states to impose a tax on inheritances. Below we will take an in-depth look at each of these taxes, as well as any rules or exceptions that could save you money.

Kentucky Income Tax

Kentucky is one of nine states that imposes a flat income tax. This differs from the federal income tax, which has a progressive tax system (higher rates for higher income levels). The state income tax rate is 5% regardless of income. Before 2018, the state had rates ranging from 2% to 6%.

To calculate taxes owed, taxpayers in Kentucky must make certain additions and subtractions to their federal adjusted gross income (AGI). The result is Kentucky taxable income, to which the above rates are applied.

Many types of retirement income that are taxable at the federal level are not taxable in Kentucky. Social security benefits are exempt, as is retirement income from any Kentucky governmental retirement systems. Pension and annuity income up to $31,110 is also exempt. Interest from federal obligations (treasury notes, etc.) is exempt, while interest income from the municipal bonds of other states is taxable. Active duty military pay is also exempt from state taxes in Kentucky.

Kentucky Tax Credits

There are a number of additional credits available to families and parents in Kentucky. These include the Child and Dependent Care Credit, which is equal to 20% of the federal credit by the same name; the Family Size Tax Credit, available to low-income families; and the Education Tuition Tax Credit. When reforming the state tax code in early 2018, legislators eliminated most deductions. The only deductions that residents can now claim on their state income taxes are for charitable donations, mortgage interest and Social Security income.

Kentucky Occupational Taxes

In addition to the state income tax, many counties and cities in Kentucky levy what are called “occupational taxes.” In general, these taxes apply to wages, not to Kentucky taxable income. That means there are no deductions, exemptions or credits applicable to these taxes.

The table below shows the occupational tax rate for every county and the largest cities in Kentucky that have one. For cities that are within a county with its own tax, both taxes must be paid and the table reflects total rates.

Kentucky Sales Tax

Thanks to Kentucky’s system of local occupational taxes, there are no local sales tax rates throughout the state. That means that the state’s sales tax rate of 6% is the only sales tax you’ll pay in Kentucky, regardless of what city you’re shopping in. Most goods and many services are subject to that rate. Kentucky legislators expanded the sales tax in 2018 to tax services that had not previously been subject to sales tax. Some services for which sales tax is required are admissions (to movies, themes parks, etc.), accommodations lasting less than 30 days, communications services, prepaid calling services, sewage and natural gas utilities, landscaping, janitorial services, many pet care veterinary services, fitness and recreational sports, laundry, bowling and extended warranties. The expanded sales tax applies to services starting on July 1, 2018.

Among the commonly purchased products that are exempt from Kentucky sales tax are most food items (excluding candy, soft drinks and prepared food), prescription drugs and prosthetic devices. Clothing, vehicles and other large purchases are all subject to the full sales tax rate.

Kentucky Property Tax

Property taxes in Kentucky are some of the lowest in the country. On average, homeowners pay just 0.86% effective property tax rates (annual taxes as a percentage of home value). That’s the 21st lowest rate in the country. Depending on where you live, however, that rate could be significantly higher or lower. County rates range between 1.18% (in Campbell County) and 0.54% (in Carter County).

If these lower property taxes have you eager to move to Kentucky, check out our mortgage guide to learn all the essentials for getting a mortgage in the Bluegrass State.

Calculate Your Property Taxes: Kentucky Property Tax Calculator

Kentucky Inheritance Tax

Inheritances in Kentucky are taxed based on the recipient’s relationship to the deceased, as well as the value of the property being bequeathed. There are three classes of recipients. Class A includes direct family like spouse, parent, child, grandchild, brother, sister, half-brother or half-sister. Recipients of an inheritance who are in this class are totally exempt from inheritance tax.

Class B recipients are indirect family like nieces, nephews, daughters- and sons-in-law, aunts, uncles and great-grandchildren. This class receives a $1,000 exemption but is otherwise subject to the tax, with rates beginning at 4% for amounts greater than that $1,000 exemption and increasing to a top rate of 16% for the amount of the inheritance above $200,000.

Class C recipients include anyone not in Class A or B, such as cousins. They receive an exemption of $500. After that, rates begin at 6% and increase to a top rate of 16% for the amount of the inheritance over $60,000.

Kentucky Alcohol Tax

Despite its rich history as a producer of the nation’s best bourbon, Kentucky’s alcoholic beverage taxes are among the highest in the nation. Liquor faces an excise tax rate of $1.92 per gallon and all types of alcohol face wholesale tax rates of 11%. When including all excise and sales taxes, beer in Kentucky is taxed at a rate of 85 cents per gallon - nearly 8 cents for each 12-ounce beer. That’s sixth-highest in the country.

Kentucky Cigarette Tax

In 2018, Kentucky legislators raised the cigarette tax by 50 cents, bringing it up to $1.10 per pack of 20. This is still below the national average which is about $1.80 per pack of 20.

Kentucky Capital Gains Tax

Capital gains are taxed as regular income in Kentucky. That means they are subject to the full income tax at a rate of 5%.

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Kentucky has the highest per capita rate of both deer and wild turkey of any U.S. state. The Cumberland Gap, in Eastern Kentucky, was the principal passage through the Appalachian Mountains during much of early American history. College basketball is the most popular sport in Kentucky. The University of Kentucky and Louisville University have combined to win 11 national championships.