Flat 3.5% (2026)Cut from 4.0%Local Occupational TaxLast reviewed June 2026

Kentucky State Income Tax 2026

Kentucky's flat income tax rate dropped from 4.0% to 3.5% on January 1, 2026, the latest step in a multi-year reduction trajectory. However, Louisville (2.2% + 0.2% county), Lexington (2.25%) and most other Kentucky cities levy occupational taxes that stack on top of the state rate.

2026 rate cut: 4.0% to 3.5%

Kentucky's flat rate dropped from 4.0% to 3.5% on January 1, 2026. The path: 2018 flat 5% (replacing graduated 5.8% top) → 2023 4.5% → 2024 4.5% → 2025 4.0% → 2026 3.5%. Subsequent reductions depend on revenue triggers defined in 2022 HB 8.

Kentucky 2026 Quick Facts

Tax type	Flat 3.5% (2026)
Previous rate (2025)	4.0%
Standard deduction (single)	$3,270
Standard deduction (MFJ)	$6,540
Local income tax	Yes - Louisville 2.4%, Lexington 2.25%
Social Security taxed	No
Retirement income exclusion	Up to $31,110 per person
Reciprocity agreements	Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin
2026 changes	Flat rate reduced from 4.0% to 3.5%

2026 Kentucky Income Tax Brackets

Rate	Single Filer Income	Married Filing Jointly
3.5%	All taxable income	All taxable income

Sources: Kentucky Department of Revenue (revenue.ky.gov), Kentucky HB 8 (2022), Tax Foundation 2026 State Tax Guide. Data verified May 2026.

Kentucky Effective Rate Calculator

Annual Gross Income

Filing Status

Standard deduction: $3,270 applied before tax calculation.

Effective Rate

3.35%

State Tax Due

$2,511

Marginal Bracket

3.5%

State income tax only. Does not include federal income tax, Social Security, Medicare, or local income tax. Calculations are estimates for educational purposes. Verify with a licensed CPA before filing.

What You Actually Pay: Worked Examples

$50,000 income

State tax due$1,636

Effective rate3.3%

Marginal bracket3.5%

After state tax$48,364

$75,000 income

State tax due$2,511

Effective rate3.3%

Marginal bracket3.5%

After state tax$72,489

$100,000 income

State tax due$3,386

Effective rate3.4%

Marginal bracket3.5%

After state tax$96,614

$250,000 income

State tax due$8,636

Effective rate3.5%

Marginal bracket3.5%

After state tax$241,364

Single filer, standard deduction. Does not include federal tax, Social Security, or Medicare.

Local Income Tax in Kentucky

Kentucky allows cities and counties to levy occupational license taxes on wages earned within the jurisdiction. Major examples:

Louisville Metro / Jefferson County: 2.2% city + 0.2% county = 2.4% combined
Lexington-Fayette County: 2.25%
Covington: 2.45%
Bowling Green: 1.85%
Owensboro: 1.78%
Most small cities: 0.5% to 1.5% range

A Louisville resident working in Louisville pays approximately 5.9% combined (3.5% state + 2.4% city/county). Lexington workers pay approximately 5.75%.

See the full local income tax guide for all US cities →

Kentucky Filing Requirements

Residents: File Kentucky Form 740 if gross income exceeds the filing threshold. Residents are taxed on all income.

Reciprocity: Kentucky has reciprocity with seven states (Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin). Residents of those states working in Kentucky file only in their home state.

Part-year residents: File Form 740-NP for the portion of the year you lived in Kentucky.

Filing deadline: April 15. Extensions available.

Retirement Income Treatment in Kentucky

Social Security benefits	Exempt	Kentucky does not tax Social Security
Traditional pension income	Partial	Up to $31,110 per person exclusion (2026, indexed)
Government pension	Partial	Same $31,110 exclusion applies
Military pension	Exempt	Fully exempt from Kentucky state income tax
401(k) and IRA withdrawals	Partial	Up to $31,110 exclusion combined with pension income
Roth IRA withdrawals	Exempt	Qualified distributions are tax-free

Kentucky is moderately retirement-friendly. The $31,110 retirement income exclusion is generous (more than Georgia's $65,000-at-65 but applies to all ages 59.5+). Combined with the 2026 rate cut and Social Security exemption, Kentucky is improving for retirees. See the full 50-state retirement income scorecard.

Kentucky Income Tax: FAQs

What is Kentucky's income tax rate for 2026?

Kentucky has a flat income tax rate of 3.5% for 2026, reduced from 4.0% on January 1, 2026. This is the latest step in a multi-year reduction trajectory: 5% in 2022, 4.5% in 2023, 4.5% in 2024, 4.0% in 2025, and now 3.5% in 2026. The reductions are conditional on revenue triggers.

Does Kentucky have a local income tax?

Yes. Kentucky allows cities and counties to levy occupational license taxes on wages earned in the jurisdiction. Major Kentucky cities with these taxes include Louisville/Jefferson County (2.2% city + 0.2% county for non-school district employees, school employees vary), Lexington-Fayette County (2.25%), and Covington (2.45%). Most Kentucky cities have an occupational tax in the 0.5% to 2.5% range.

Does Kentucky tax Social Security?

No. Kentucky does not tax Social Security benefits. Kentucky also provides a $31,110 retirement income exclusion per person (2026 amount, indexed) for distributions from pensions and other qualified retirement plans, making it relatively retirement-friendly.

What is Kentucky's standard deduction?

Kentucky's standard deduction for 2026 is $3,270 for single filers and $6,540 for married filing jointly. Kentucky does not allow personal exemptions; the standard deduction is the only base reduction in taxable income before applying the 3.5% rate.

When did Kentucky go to a flat rate?

Kentucky transitioned from a graduated income tax (top rate 5.8%) to a flat 5% rate in 2018. The 2022 reform legislation (HB 8) established a path to lower the flat rate based on revenue triggers, leading to the steady reductions through 2026.

Sources: Kentucky Department of Revenue (revenue.ky.gov), Kentucky HB 8 (2022), Tax Foundation 2026 State Tax Guide. Data verified May 2026. Not tax advice. Always confirm current figures with the Kentucky Department of Revenue or a licensed CPA or Enrolled Agent before filing.