Kentucky has a state income tax, and it applies to most types of income you earn

Kentucky taxes wages, salaries, interest, dividends, and retirement income. The state does not tax Social Security benefits or certain military pensions, but nearly everything else counts as taxable income. Kentucky's tax rates range from 2% on the lowest bracket to 5.75% on the highest, depending on how much you earn in a year.

Unlike some states that have no income tax at all, Kentucky has required you to file a state return and pay tax on earnings since 1922. If you work in Kentucky or live there, you owe state income tax on your income. If you work in another state but live in Kentucky, you may owe Kentucky tax on that income too — the rules depend on your residency status and where your employer is located.

Key Takeaways

  • Kentucky's state income tax rates run from 2% to 5.75% depending on your income bracket, and you must file a state return if you earn above the filing threshold.
  • Social Security benefits and certain military pensions are not taxed in Kentucky, but wages, interest, and most retirement income are.
  • If you work out of state but live in Kentucky, you typically owe Kentucky tax on your full income, though you may receive a credit for taxes paid to another state.
  • Kentucky allows you to claim the same deductions and credits on your state return as you do on your federal return, including the standard deduction.

Kentucky's tax brackets and rates for 2024

Kentucky uses a progressive tax system, meaning your tax rate increases as your income rises. The state has five tax brackets. The lowest rate of 2% applies to the first portion of your income, and the rate climbs to 5.75% on income above a certain threshold. The exact dollar amounts for each bracket change each year because they are adjusted for inflation.

For the 2024 tax year, the brackets apply to your federal taxable income after you take the standard deduction or itemize. Kentucky does not set its own deduction amounts — it uses the federal standard deduction, which was $13,850 for single filers and $27,700 for married couples filing jointly in 2024. Once you know your Kentucky taxable income, you apply the rate for your bracket to calculate what you owe.

You can find the exact 2024 bracket amounts on the Kentucky Department of Revenue website. Because the brackets shift annually, it is worth checking the current year's rates before you file, especially if your income is near a bracket boundary.

What income is taxed and what is not

Kentucky taxes earned income — wages, salaries, tips, and self-employment income. It also taxes unearned income like interest from savings accounts, dividends from stocks, capital gains, rental income, and income from retirement accounts when you withdraw it.

Kentucky does not tax Social Security benefits, no matter how much you receive. Military pensions paid by the federal government are also exempt from Kentucky tax. Some military retirement income and certain federal employee pensions receive partial or full exemptions, depending on the type of pension and when you earned it.

If you receive income from a Kentucky-based business or rental property, that income is taxable. If you have a pension from a private employer or an IRA withdrawal, that is taxable too. The key distinction is that Kentucky exempts only Social Security and certain government military pensions — almost everything else counts.

Filing requirements and thresholds

You must file a Kentucky state return if your income exceeds the filing threshold for your filing status. For 2024, the threshold was $2,700 for single filers, $5,400 for married couples filing jointly, and $2,700 for heads of household. These thresholds are based on Kentucky taxable income, not federal taxable income, so the calculation is slightly different.

Even if you do not meet the filing threshold, you may want to file anyway if you had taxes withheld from your paychecks or if you are owed a refund. Filing allows you to claim refundable credits and recover overpaid tax. Kentucky also offers a Earned Income Tax Credit (EITC) for low-income workers, which can result in a refund even if you owe no tax.

You file your Kentucky return using Form 740 or Form 740-NP (for nonresidents and part-year residents). The deadline is the same as the federal deadline, typically April 15. If you file your federal return late or request an extension, your Kentucky return is also extended.

How withholding works and what to do if too much is taken

When you start a job in Kentucky, your employer uses a W-4 form to determine how much state tax to withhold from each paycheck. The amount withheld depends on your filing status, the number of dependents you claim, and any additional withholding you request. If you do not provide a W-4, your employer withholds at the highest rate.

If too much tax is withheld during the year, you receive a refund when you file your return. If too little is withheld, you owe the difference. You can adjust your withholding at any time by submitting a new W-4 to your employer — you do not have to wait until the next year. If you work multiple jobs or have other income sources, adjusting your withholding can help you avoid a large bill at tax time.

Self-employed people and those with income not subject to withholding may need to make estimated tax payments to Kentucky quarterly. These are due on April 15, June 15, September 15, and January 15. If you do not pay enough through withholding or estimated payments, you may owe a penalty when you file.

Out-of-state workers and residency rules

If you live in Kentucky but work in another state, you typically owe Kentucky tax on your full income. However, you may receive a credit on your Kentucky return for taxes you paid to the other state, so you do not pay tax twice on the same income. The credit is limited to the lesser of what you paid to the other state or what you would owe to Kentucky.

If you work in Kentucky but live in another state, Kentucky generally does not tax your income — the state where you live has the right to tax you. However, some states have reciprocal agreements with Kentucky that affect this rule. Indiana, Illinois, Michigan, Ohio, and Virginia have agreements with Kentucky that may exempt you from Kentucky tax if you live there and work in Kentucky. You should check with both your home state and Kentucky to understand your obligations.

If you moved to or from Kentucky during the year, you file as a part-year resident on Form 740-NP. You report only the income you earned while you were a Kentucky resident, and you use the part-year resident tax tables to calculate your tax.

Credits and deductions you can claim

Kentucky allows you to claim the same federal deductions and credits on your state return. If you take the standard deduction on your federal return, you take it on your Kentucky return too. If you itemize deductions on your federal return, you itemize on your Kentucky return.

Kentucky offers several state-specific credits. The Earned Income Tax Credit is available to low-income workers and can result in a refund. The Child and Dependent Care Credit helps offset the cost of childcare. The Education Credit provides relief for education expenses. There is also a credit for taxes paid to other states, which applies if you work out of state.

Some credits are refundable, meaning you can receive a refund even if you owe no tax. Others are nonrefundable, meaning they can only reduce your tax liability to zero. The Kentucky Department of Revenue website lists all available credits and the income limits for each.

Frequently Asked Questions

Do I have to pay Kentucky income tax if I just moved there?

If you moved to Kentucky partway through the year, you file as a part-year resident and pay tax only on income earned after you moved. If you moved before January 1, you are a full-year resident and owe tax on all your income for that year. Use Form 740-NP to report your residency status and the date you moved.

Is retirement income from a 401(k) or IRA taxed in Kentucky?

Yes. Withdrawals from traditional IRAs, 401(k)s, and similar retirement accounts are taxed as income in Kentucky. Roth IRA withdrawals are not taxed if you meet the holding period requirements. Some federal employee pensions and military pensions receive exemptions, but most private retirement income is taxable.

What happens if I do not file a Kentucky return?

If you owe tax and do not file, Kentucky can assess penalties and interest on the unpaid amount. If you are owed a refund, there is no penalty for not filing, but you lose the refund after a certain period. It is generally better to file even if you owe, because filing stops the penalty clock and allows you to set up a payment plan if needed.

Can I claim the same dependents on my Kentucky return as I do on my federal return?

Yes. Kentucky uses the same dependent rules as the federal government. If a dependent qualifies on your federal return, they may have access to on your Kentucky return. You claim them the same way on both returns.

Do I owe Kentucky tax if I work remotely for an out-of-state company but live in Kentucky?

Yes. If you live in Kentucky, you owe Kentucky tax on your income regardless of where your employer is located or whether you work remotely. The state taxes based on residency, not on where the work is performed.