Kentucky imposes a flat 3.50% state income tax for 2026 - reduced from 4.0% by HB 1 (signed February 6, 2025), the latest in a series of annual rate cuts. The Kentucky standard deduction is $3,360, which applies to all filing statuses. Kentucky uses federal AGI as its starting income base. Kentucky does not conform to the OBBBA tips and overtime deductions due to a fixed IRC conformity date of December 31, 2024.
State Income Tax
Flat 3.50%
Standard Deduction
$3,360 (all statuses)
Supplemental Rate
3.50%
Kentucky Income Tax 2026
Kentucky's flat 3.50% applies to all Kentucky taxable income. Kentucky taxable income starts from federal AGI with Kentucky additions and subtractions, then subtracts the $3,360 standard deduction. Uniquely, Kentucky uses the same standard deduction amount for all filing statuses - single, married filing jointly, married filing separately, and head of household all receive the same $3,360 deduction.
OBBBA Conformity - Kentucky Does Not Conform
Kentucky's income tax law adopts the Internal Revenue Code as of December 31, 2024 (fixed conformity date under KRS 141.010). The OBBBA was enacted in July 2025 - after Kentucky's conformity window. As a result, for 2026 tax returns, Kentucky workers who claim the federal tips income deduction, overtime deduction, or $6,000 senior bonus deduction must add those amounts back on their Kentucky return. The federal deductions reduce federal taxable income but not Kentucky taxable income under current law.
Kentucky Sales Tax
Kentucky's state sales tax rate is 6%, with no local sales taxes. Kentucky is one of only a few states where the state rate is the only applicable rate statewide. Food for human consumption purchased for off-premises eating is exempt from Kentucky sales tax.
Kentucky has a flat 3.50% state income tax for tax year 2026. This was reduced from 4.0% by HB 1 (signed February 6, 2025, effective January 1, 2026) - the latest in a series of annual rate cuts. Kentucky also allows a standard deduction of $3,360, which applies to all filing statuses equally. Kentucky uses federal AGI as its starting income base with Kentucky modifications.
How has Kentucky's income tax rate changed in recent years?
Kentucky has been cutting its flat income tax rate annually: the rate was 5% through 2022, 4.5% in 2023, 4.0% in 2024-2025, and now 3.50% for 2026 under HB 1. Each cut was enacted as part of Kentucky's tax reform strategy to reduce the income tax burden over time. Future cuts are contingent on meeting budget surplus thresholds under KRS 141.020.
Does Kentucky conform to the OBBBA tips and overtime deductions?
No - Kentucky does not conform to the OBBBA tips income deduction or overtime deduction for 2026. Kentucky's individual income tax law references the Internal Revenue Code as of December 31, 2024 (KRS 141.010 conformity date). The OBBBA was enacted in July 2025 - after Kentucky's conformity cutoff. Workers who claim the federal tips or overtime deduction must add those amounts back on their Kentucky tax return. The deductions reduce federal income tax but provide no Kentucky income tax benefit under current law.
Does Kentucky have local income taxes?
Kentucky does not have a statewide local income tax system. However, many Kentucky cities and counties impose occupational license fees (ranging roughly 1%â2.5%) on wages earned within their jurisdictions. Louisville/Jefferson County, Lexington/Fayette County, and dozens of smaller cities have these fees. These are separate from Kentucky state income tax and are often withheld by employers alongside state tax.
Does Kentucky tax Social Security and retirement income?
Social Security benefits are fully exempt from Kentucky income tax. Kentucky also provides an exclusion for certain public pension income via Schedule P - specifically, retirement income from the Kentucky Retirement Systems, state and local government pensions, and certain federal pensions that were tax-exempt under prior law may be excluded. The Schedule P exclusion is approximately $31,110 - verify the exact 2026 figure from KY DOR. Private 401(k) and IRA distributions above the exclusion are taxed at the flat 3.50% rate.
What is Kentucky's withholding rate for bonuses?
Kentucky's supplemental withholding rate for bonuses and other irregular payments is 3.50%, matching the flat income tax rate, as confirmed from the 2026 Kentucky Withholding Tax Formula (Form 42A003).
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