Kentucky has a state income tax, and it applies to most forms of income

Kentucky taxes income earned within the state at rates between 2% and 5.75%, depending on your income bracket. This is separate from federal income tax — you owe both. The state collects income tax from wages, self-employment income, interest, dividends, and retirement distributions, though some types of income receive preferential treatment or exemptions.

If you work in Kentucky or live there, you will file a state return in addition to your federal return. The Kentucky Department of Revenue handles state income tax, and the filing deadline matches the federal deadline: typically April 15 each year.

Key Takeaways

  • Kentucky's state income tax rates range from 2% to 5.75% depending on your income level, and apply to wages, self-employment income, and most other income sources.
  • Military pensions and some retirement income receive preferential tax treatment in Kentucky, meaning you may owe less or nothing on those funds.
  • If you work in Kentucky but live in another state, you typically owe Kentucky tax on wages earned there, though you may receive a credit from your home state to avoid double taxation.
  • You file your Kentucky state return using Form 740 or Form 740-NP, and the deadline is the same as your federal return deadline.

Kentucky's income tax brackets and rates

Kentucky uses a progressive tax system with six tax brackets. Your rate depends on your filing status and total income. For the 2024 tax year, single filers pay 2% on income up to $3,000, then the rate increases in steps until reaching 5.75% on income over $75,000. Married couples filing jointly have higher income thresholds before moving into each bracket.

The state adjusts these brackets annually for inflation, so the exact dollar amounts change each year. You can find the current year's brackets on the Kentucky Department of Revenue website or on your tax forms when you file.

What income is taxed and what is not

Kentucky taxes wages, salaries, tips, self-employment income, interest, dividends, capital gains, and distributions from retirement accounts. However, military pensions are fully exempt from Kentucky state income tax, regardless of amount. Some retirement income also receives preferential treatment: if you are age 59½ or older, you may exclude up to $41,110 of retirement income (for single filers) or $68,510 (for married couples filing jointly) from your Kentucky taxable income.

Social Security benefits are not taxed by Kentucky. Certain types of investment income and income from specific sources may also be exempt or taxed at lower rates. The rules vary depending on the source and your age, so review the instructions for Form 740 or contact the Kentucky Department of Revenue if you are unsure whether a specific income source is taxed.

How to file your Kentucky state return

Most people file using Form 740 (Individual Income Tax Return). If you have no income tax to report but need to claim a refund, you use Form 740-NP (No Tax Return). You can file on paper by mail or electronically through the Kentucky Department of Revenue website or through tax software that supports Kentucky returns.

You will need your Social Security number, your federal adjusted gross income (from your federal return), and documentation of any deductions or credits you claim. If you are self-employed, you will also need to report your net business income and may owe self-employment tax to both Kentucky and the federal government.

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 Indiana, Ohio, Illinois, or Virginia, you may be subject to a reciprocal agreement that reduces or eliminates your Kentucky tax obligation — check with both states' tax departments to confirm. If you live in a state with no income tax (like Tennessee or Florida) and work in Kentucky, you owe Kentucky tax on your wages.

Most states allow you to claim a credit for taxes paid to another state, so you typically do not pay tax twice on the same income. However, the mechanics vary by state, and you may need to file returns in both places. The Kentucky Department of Revenue can clarify your situation based on where you live and work.

Deductions and credits available in Kentucky

Kentucky allows a standard deduction similar to the federal standard deduction, or you can itemize deductions if they exceed the standard amount. The standard deduction amount depends on your filing status and age and changes annually. You can also claim various tax credits, including the Earned Income Tax Credit (EITC), child and dependent care credit, and education-related credits.

Some credits are refundable, meaning you can receive money back even if you owe no tax. Others reduce your tax bill but do not result in a refund if the credit exceeds what you owe. Review the Form 740 instructions or the Kentucky Department of Revenue website to determine which deductions and credits apply to your situation.

Frequently Asked Questions

Do I have to file a Kentucky return if I only lived there part of the year?

If you earned income in Kentucky during any part of the year, you generally must file a Kentucky return for that year, even if you moved out before December 31. Part-year residents report only the income earned while they lived in Kentucky. Contact the Kentucky Department of Revenue if you are unsure whether you meet the filing requirement.

What happens if I do not file my Kentucky return?

The Kentucky Department of Revenue can assess penalties and interest on unpaid taxes. If you are owed a refund and do not file, you forfeit it — Kentucky typically holds refunds for three years before returning them to the state. Filing even if you owe nothing protects you and ensures you receive any refund due.

Can I file my Kentucky return electronically?

Yes. You can file through the Kentucky Department of Revenue website, through tax software that supports Kentucky returns, or through a tax professional. Electronic filing is faster than paper mail and provides confirmation of receipt.

Is Kentucky income tax withheld from my paycheck automatically?

If you work in Kentucky, your employer should withhold Kentucky income tax from your paycheck based on the W-4 form you complete. If you work for an out-of-state employer or are self-employed, you may need to make estimated tax payments to Kentucky quarterly. Review your pay stub to confirm withholding is occurring.