Kentucky does have a state income tax
Kentucky taxes wage income, retirement income, and most other forms of personal income. The state does not have a flat tax rate — instead, it uses a progressive system with rates that climb as your income rises. The lowest rate is 2% and the highest is 5.85%, depending on your tax bracket.
Unlike some states that exempt certain types of income, Kentucky taxes most sources: W-2 wages, self-employment income, interest, dividends, and retirement distributions from IRAs and 401(k)s. The main exception is Social Security benefits, which are not taxed by Kentucky.
Key Takeaways
- Kentucky's state income tax ranges from 2% to 5.85% depending on your income level, with higher earners paying the top rate.
- Retirement income including 401(k) withdrawals and IRA distributions is subject to Kentucky state income tax, unlike Social Security.
- You file Kentucky state taxes using Form 740, which is due the same day as your federal return (usually April 15).
- If you work in Kentucky but live in another state, you may owe Kentucky tax on wages earned in the state.
Kentucky's tax brackets and rates
Kentucky uses six tax brackets. The rates increase as your taxable income rises. For the 2024 tax year, the brackets are:
| Taxable Income Range | Tax Rate |
|---|---|
| $0 to $3,000 | 2% |
| $3,001 to $4,000 | 3% |
| $4,001 to $5,000 | 4% |
| $5,001 to $8,000 | 5% |
| $8,001 and above | 5.85% |
These brackets apply to your taxable income after you subtract the standard deduction or itemized deductions. Kentucky's standard deduction for 2024 is $2,860 for single filers and $5,720 for married couples filing jointly. The brackets adjust slightly each year for inflation.
What income Kentucky taxes and what it doesn't
Kentucky taxes most forms of personal income. This includes wages from your job, net income from self-employment, interest earned on savings accounts and bonds, and dividends from stocks. If you receive a 1099 form for freelance work, rental income, or other business activity, that income is taxable in Kentucky.
Retirement distributions are taxed. If you withdraw money from a traditional 401(k) or IRA, Kentucky taxes that withdrawal as ordinary income. Roth IRA withdrawals are not taxed, since you already paid tax on the money when you contributed it. Pension income from a former employer is also taxable.
Social Security benefits are the main exception. Kentucky does not tax Social Security retirement, survivor, or disability benefits. Military retirement pay is also exempt from Kentucky income tax. Some other narrow exemptions exist — for instance, income from certain bonds issued by Kentucky municipalities — but these affect very few people.
How to file Kentucky state taxes
You file Kentucky state taxes using Form 740, the Kentucky Individual Income Tax Return. This form is due on the same date as your federal return, which is usually April 15. If you file your federal return late, your Kentucky return is also due by that later date.
You can file by mail or electronically. The Kentucky Department of Revenue website lists approved e-file providers. If you use tax software like TurboTax or H&R Block, those programs can file your Kentucky return at the same time as your federal return. If you mail the form, send it to the address listed on the form itself — do not send it to the federal IRS address.
You will need your federal tax return information to complete Form 740, since Kentucky uses your federal taxable income as a starting point. If you owe Kentucky tax, you can pay online through the Department of Revenue website, by mail with your return, or through an approved payment processor.
If you work in Kentucky but live elsewhere
Kentucky taxes income earned within the state, even if you live in another state. If you work in Kentucky and live in Ohio, Indiana, Illinois, or Virginia, you may owe tax to both Kentucky and your home state. However, Kentucky offers a credit for taxes paid to other states, which prevents you from being taxed twice on the same income.
You will file a Kentucky nonresident return (Form 740-NR) reporting only the income you earned in Kentucky. Your home state will tax your total income but should allow a credit for Kentucky tax paid. The exact calculation depends on your home state's rules, so it is worth reviewing both states' guidance or consulting a tax preparer if you cross state lines for work.
Deductions and credits available in Kentucky
Kentucky allows a standard deduction, which reduces the income you pay tax on. For 2024, the standard deduction is $2,860 for single filers and $5,720 for married couples filing jointly. If you itemize deductions instead, you can deduct mortgage interest, property taxes, charitable contributions, and medical expenses, similar to the federal return.
Kentucky also offers a dependent exemption of $60 per dependent, which further reduces your taxable income. Some taxpayers may be able to claim credits — for instance, a child and dependent care credit or a credit for taxes paid to other states. The Kentucky Department of Revenue website lists all available credits and the forms needed to claim them.
Frequently Asked Questions
Do I have to file a Kentucky return if I live out of state?
Only if you earned income in Kentucky during the year. If you worked in Kentucky but moved out of state, you file a nonresident return reporting Kentucky-source income. If you have no Kentucky income, you do not file a Kentucky return.
Is Social Security taxed in Kentucky?
No. Kentucky does not tax Social Security retirement, survivor, or disability benefits. This applies to all recipients, regardless of income level. Military retirement pay is also exempt.
What if I owe Kentucky tax but cannot pay by April 15?
You can request a payment plan through the Kentucky Department of Revenue. File your return on time even if you cannot pay the full amount — filing late carries a larger penalty than paying late. You can set up a plan online or by calling the department.
Are retirement account withdrawals taxed differently in Kentucky?
Traditional 401(k) and IRA withdrawals are taxed as ordinary income at your regular rate. Roth IRA withdrawals are not taxed. Pension income is also taxed as ordinary income. Social Security is the main retirement income that Kentucky does not tax.
Do I need to file if my income is below the standard deduction?
Not necessarily. If your income is below the standard deduction for your filing status, you generally do not owe Kentucky tax and do not need to file. However, filing may be worth it if you paid tax through withholding or are owed a refund.