What Taxes Do You Pay in Kentucky? Income, Property, Inheritance

If you live or work in Kentucky, you’ll pay a flat state income tax of 3.5% starting with the 2026 tax year, a 6% state sales tax, locally set property taxes (including on your vehicle), and in most cities and counties a local occupational tax withheld from your wages. Depending on your situation, you may also run into Kentucky’s inheritance tax, excise taxes on fuel and other goods, and business entity taxes. So the short answer to what taxes you pay in Kentucky is: one state income rate, one statewide sales rate, and a layer of local taxes that varies by where you live and work.

Here’s how each one works.

State Income Tax

Kentucky taxes individual income at a single flat rate. For the 2026 tax year that rate is 3.5%, down from 4.0% in 2024 and 2025. The reduction was enacted through House Bill 1 in early 2025 after the state met revenue triggers set in 2022 legislation.¹

Full-year residents file Form 740. Part-year residents and nonresidents use Form 740-NP. Your taxable income is calculated after subtracting deductions and exemptions, and the standard deduction adjusts each year for inflation. For the 2024 tax year it was $3,160.¹

Income Kentucky Doesn’t Tax

Several categories of income are shielded from the state tax. Social Security benefits and active-duty military pay are fully excluded.¹ Pension and retirement income from any written retirement plan, including 401(k) accounts, IRAs, and government pensions, is exempt up to $31,110 per year as of the 2025 tax year. You claim the exclusion on Schedule P filed with your return.²

Credits

Kentucky offers several non-refundable credits that reduce what you owe. The Family Size Tax Credit is available to filers with modified gross income below set thresholds and scales with household size. Taxpayers aged 65 or older, or those who are legally blind, qualify for an additional credit. Kentucky also allows a Child and Dependent Care Credit equal to 20% of the federal credit you claim.¹

Local Occupational Tax on Wages

This one surprises people moving in from other states. Hundreds of Kentucky cities and counties impose an occupational license tax on wages earned inside their borders. Your employer withholds it from your paycheck. Rates vary widely: some jurisdictions charge less than half a percent, others exceed 2%. For many cities, the occupational tax funds the majority of the operating budget.

The tax is calculated on gross wages, not your taxable income after deductions. If you live in one city and work in another, you usually owe the tax to the jurisdiction where the work is performed. Some localities give a credit for tax paid elsewhere to limit double taxation, but the rules aren’t uniform across the state.

Because these taxes are administered locally, each jurisdiction has its own forms, deadlines, and filing requirements. You can’t handle them through your state return. Businesses operating within a taxing jurisdiction also owe a net-profits version of the tax.

Sales and Use Tax

Kentucky charges a flat 6% sales tax on most retail goods and an expanding list of services. There are no local sales taxes anywhere in the state, so the rate is the same whether you shop in Louisville or a rural county.³

Taxable services include landscaping, household moving, and many recreational activities. Groceries purchased for home consumption are exempt. Clothing is not. Prescription medications and certain medical devices used for treatment or diagnosis are also exempt.

Kentucky also collects a 6% use tax on goods you buy out of state and bring into the Commonwealth for personal or business use. The use tax is there to keep people from ordering taxable items from out of state to avoid the sales tax.³

Property Tax

Property taxes in Kentucky are set and collected locally, but assessments follow state rules. Each county’s Property Valuation Administrator determines the fair cash value of real property, and each local taxing district (county, city, school district) applies its own rate to that value.⁴ Tangible personal property used in business, such as equipment and inventory, is also taxable.

A detail that catches newcomers off guard: Kentucky taxes motor vehicles as personal property. Your car, truck, or motorcycle is assessed every year and you pay property tax on it based on its value. That’s on top of registration fees.

Homestead Exemption

Homeowners who are 65 or older, or who are classified as totally disabled, can reduce their property’s assessed value before taxes are calculated. For the 2025 and 2026 assessment periods, the exemption amount is $49,100, and it’s recalculated every two years to keep pace with inflation.⁴

To qualify, you must own the property, live in it as your primary residence, and have it classified as your home as of January 1 of the tax year. Disabled applicants need to have maintained the classification for the entire tax period and provide verification.

Inheritance Tax

Kentucky is one of the few states that still levies an inheritance tax. It’s charged against the beneficiary, not the estate, and what you owe depends on your relationship to the person who died.

Beneficiaries fall into three classes:⁵

Class A, which covers spouses, parents, children, grandchildren, siblings, and half-siblings, is fully exempt.
Class B, which covers nieces, nephews, daughters-in-law, sons-in-law, aunts, uncles, and great-grandchildren, has a $1,000 exemption with rates from 4% to 16% on the remainder.
Class C, everyone else including cousins and unrelated beneficiaries, has a $500 exemption with rates from 6% to 16%.

Kentucky’s inheritance tax has no minimum estate size. Even a small bequest to a Class C beneficiary triggers the tax.

Excise Taxes

Motor Fuel

The combined gasoline tax, which bundles the excise tax, a supplemental highway user fee, and a petroleum environmental assurance fee, totals $0.264 per gallon for fiscal year 2026 (beginning July 1, 2025). That’s down from $0.278 the prior fiscal year.⁶

Tobacco and Alcohol

Cigarettes are taxed at $0.60 per pack of 20. Alcoholic beverages carry both per-gallon excise taxes and an 11% wholesale sales tax. Per-gallon rates include $7.35 on distilled spirits and $3.18 on wine.⁷

Electric Vehicle Charging

Public electric vehicle charging stations are subject to an excise tax that started at $0.03 per kilowatt hour in 2024 and increased to $0.032 per kilowatt hour as of January 1, 2025, with mandated annual increases of $0.002. Charging stations on state property pay an additional surtax at the same rate. Only fast-charging stations with capacity above 20 kilowatts are subject to the tax; Level 1 and Level 2 chargers are excluded.⁸

Business Taxes

Kentucky taxes corporations at a flat 5% rate on net taxable income. Both domestic and foreign corporations doing business in the state are subject to it.

On top of corporate income tax, Kentucky imposes a Limited Liability Entity Tax (LLET) on C corporations, S corporations, partnerships, and other entities that operate with limited liability protection. Sole proprietorships and general partnerships are exempt. The LLET is calculated as the lesser of 0.095% of Kentucky gross receipts or 0.75% of Kentucky gross profits, with a minimum payment of $175. Corporations can credit the LLET they pay (minus the $175 minimum) against their corporate income tax liability.

Pass-through entities don’t pay corporate income tax directly. Their income flows through to owners, who report it on their individual state returns at the 3.5% rate for 2026. At the federal level, pass-through owners can claim a Qualified Business Income deduction of up to 20% of qualified income.⁹

Filing Deadlines and Late Penalties

Kentucky’s individual income tax return is due on the same date as your federal return. For the 2025 tax year, filed in 2026, that’s April 15, 2026.¹⁰ Kentucky honors a federal extension; filing for an automatic six-month federal extension covers your state return too, but any tax owed still accrues interest from the original due date.

Federal late-filing penalties run 5% of unpaid tax per month, up to a 25% maximum.¹¹ Late payment adds 0.5% per month on the unpaid balance, also capped at 25%, dropping to 0.25% per month if you file on time and set up an approved payment plan.¹² Kentucky imposes its own late-filing and late-payment penalties on top of the federal ones.

Local occupational tax returns follow their own schedules, which vary by jurisdiction. If you owe occupational tax, check with your local tax office for its specific due dates. Missing those carries separate penalties.

1
Kentucky Department of Revenue. DOR Announces Updates to Individual Income Tax for 2024 Tax Year
2
Department of Revenue. Kentucky Pension Income Exclusion Schedule P (2025)
3
Department Of Revenue. FAQ Sales And Use Tax
4
Kentucky Department of Revenue. The Assessment Process for Real Property
5
Kentucky Department of Revenue. A Guide to Kentucky Inheritance and Estate Taxes
6
Kentucky Legislative Research Commission. Gas Tax Memo FY 26
7
National Institute on Alcohol Abuse and Alcoholism. Alcohol Policy Information System – Kentucky
8
Kentucky Department of Revenue. Electric Vehicle Power Excise Tax
9
Internal Revenue Service. Qualified Business Income Deduction
10
Internal Revenue Service. When to File
11
Internal Revenue Service. Failure to File Penalty
12
Internal Revenue Service. Failure to Pay Penalty