Kentucky State Tax: Overview
Kentucky has a flat personal income tax rate, some local additional taxes on wages, and an inheritance tax. However, the Bluegrass State prevents local governments from adding to the state's comparatively modest sales tax rate.
The property tax burden has also typically been low on average compared to other states.
[Data for this state tax guide was gathered from a number of sources including the Census Bureau, the state’s government website, the Sales Tax Handbook, and the Tax Foundation. Property taxes are cited as a rate percentage rather than the assessed value.]
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Kentucky Income Taxes
Kentucky generally has a flat income tax rate of 4.5%. Certain counties, cities and other local government entities (such as school boards) can levy an additional occupational license payroll tax on wages earned by employees working within their boundaries.
The state rate is reduced to 4.5% beginning in 2023. Further 0.5% reductions are possible in future years if certain revenue and budget conditions are met and the state legislature authorizes a reduction.
- Social Security benefits are not taxed by the state.
- Up to $31,110 of income from private, government, and military retirement plans (including IRAs and 401(k) plans) is exempt. However, government retirement income attributable to service credits earned before 1998 is fully exempt without limits.
- Railroad Retirement benefits are also exempt from tax in Kentucky.
Kentucky Sales Tax
Kentucky's state sales tax rate is 6%. There are no local taxes in the state.
Groceries: Exempt
Clothing: Taxable
Motor Vehicles: Exempt if 6% motor vehicle usage tax is paid
Prescription Drugs: Exempt
What are Property Taxes in Kentucky?
In Kentucky, the average property tax paid is .83% per assessed home value, according to the Tax Foundation.
Kentucky Property Tax Breaks for Retirees
For homeowners 65 and older, $40,500 of the assessed value of residential property is exempt from state taxes for 2021 and 2022. The exemption amount goes up to $46,350 for 2023 and 2024.
Kentucky Gas (Motor Fuels) Tax
- Gasoline: is taxed at 28.7 cents per gallon in Kentucky.
- Diesel: About 26¢ per gallon.
Kentucky Taxes on Alcohol and Tobacco
| Product | Tax |
|---|---|
| Cigarettes | : $1.10 per pack of 25 |
| Snuff | $0.19 per unit of 1.5 ounces |
| Chewing tobacco | Approximately $0.19 for a single unit (net weight less than 4 ounces sold) |
| Other tobacco products | 15% of the wholesale price |
| Vapor products | $1.50 per cartridge for closed system, 15% of the wholesale price for other products |
Source: Kentucky Department of Revenue
| Product | Tax |
|---|---|
| Beer | $0.08 per gallon |
| Wine | $0.50 per gallon |
| Liquor | $1.92 per gallon |
A 10.75% sales tax is also charged at the wholesale level.
Source: The Sales Tax Handbook
Kentucky Estate and Inheritance Taxes
Kentucky has an inheritance tax, but the decedent's spouse, parents, children, grandchildren, and siblings are exempt.
- Nieces, nephews, daughters-in-law, sons-in-law, aunts, uncles, and great-grandchildren are taxed at rates ranging from 4% to 16%, depending on the value of the property inherited (the first $1,000 of property is exempt).
- All other heirs are taxed at rates ranging from 6% to 16% (their exemption is only for the first $500 of property).
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