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Official Tax Guide

Kentucky Taxes 2025: Income, Sales, and Property Tax Guide

Complete guide to Kentucky state taxes. Income tax (4.0% (Flat)), sales tax, and what you need to know before moving.

Updated January 15, 2026
5 min read

Kentucky State Tax Guide 2025

Welcome to Kentucky! As you settle into the Bluegrass State, understanding the tax landscape is crucial for financial planning. This guide provides an overview of Kentucky's tax system for 2025, focusing on key areas relevant to new residents.

1. Income Tax

Kentucky has a straightforward income tax structure, which is particularly beneficial for those moving from states with complex, progressive tax brackets.

The Rate

  • Flat Rate: Kentucky utilizes a flat income tax rate of 4.0% for the 2025 tax year.
  • Progressive vs. Flat: Unlike a progressive system where tax rates increase with income, a flat tax means all taxpayers pay the same percentage of their income, regardless of their earnings bracket. This applies to both individual and corporate income.

Filing

  • All Kentucky residents with income above a specific threshold must file a state tax return annually.
  • The Kentucky Department of Revenue accepts e-filing, which is the fastest way to receive your refund.

2. Sales Tax

When purchasing goods and some services in Kentucky, you will encounter sales tax.

  • State Rate: The statewide sales tax rate is 6.0%.
  • Local Taxes: While the state rate is fixed, local jurisdictions (cities and counties) do not add additional sales taxes on top of the state rate. This makes the 6.0% rate consistent throughout most of the state, simplifying shopping and business transactions.
  • What's Taxed? Most tangible personal property is taxable. However, Kentucky does not tax essential items like groceries (though a lower "food tax" rate of 1% may apply in certain circumstances), prescription drugs, or certain medical devices.

3. Property Tax

Property taxes in Kentucky are administered at the local level and are a significant source of revenue for schools, libraries, and emergency services.

  • General Context: Kentucky's property tax rates are generally lower than the national average. The state does not have a statewide property tax; instead, rates are set by local taxing districts.
  • How It's Calculated: Taxes are based on the assessed value of your property (real estate and vehicles). The assessed value is a percentage of the property's fair market value. For real estate, this is typically assessed at 100% of the fair market value, while personal property (like vehicles) is assessed at a different rate.
  • Homestead Exemption: Kentucky offers a homestead exemption for homeowners aged 65 or older or who are totally disabled, which provides a credit against property taxes.

4. Other Taxes

Beyond income and sales, Kentucky imposes several other taxes that may affect your wallet.

  • Gas Tax: Kentucky's motor fuel taxes are levied per gallon and are adjusted annually. As of 2025, the rates are subject to change based on inflation and other factors, but generally include a state tax on gasoline and diesel.
  • "Sin" Taxes: Kentucky taxes alcohol and tobacco products at rates that are typically higher than the general sales tax. These excise taxes are included in the retail price.
  • Inheritance Tax: Kentucky is one of the few states that still imposes an inheritance tax. However, it is important to note that immediate family members (spouses, parents, children, siblings) are exempt from paying this tax. The tax applies to transfers to more distant relatives or non-relatives, with rates varying based on the relationship to the deceased and the value of the inheritance.

5. Retiree Taxes

For those moving to Kentucky for retirement, the tax treatment of retirement income is a key consideration.

  • Taxed Income: Kentucky generally taxes most retirement income, including distributions from 401(k)s, traditional IRAs, and pensions.
  • Social Security: Social Security benefits are not taxed by the state of Kentucky.
  • Senior Tax Relief: While retirement distributions are taxable, Kentucky offers a tax credit for seniors (age 65+) to help offset the tax burden. This credit is based on the taxpayer's income and can significantly reduce or eliminate state income tax liability for many retirees.

6. Comparison with Neighboring States

Understanding how Kentucky stacks up against its neighbors can provide helpful context.

  • Ohio: Ohio has a progressive income tax system with brackets ranging from 0% to 3.5%. Sales tax rates can vary by locality but are generally comparable. Property taxes in Ohio are typically higher than in Kentucky.
  • Indiana: Indiana has a flat income tax rate of 3.05% (slightly lower than Kentucky's). The sales tax rate is 7.0%, which is higher than Kentucky's 6.0%. Property taxes in Indiana are also generally lower than in Kentucky.
  • Tennessee: Tennessee has no state income tax on wages, which is a major draw. However, its sales tax rate is 7.0% (plus local taxes), making it one of the highest in the nation. Property taxes are relatively low.
  • Virginia: Virginia has a progressive income tax system with rates ranging from 2% to 5.75%. Sales tax is 5.3% (plus local taxes). Property taxes are generally moderate, varying by locality.

Disclaimer: Tax laws change frequently. This guide is for informational purposes only and is based on data available for 2025. It is not a substitute for professional tax advice. Consult a CPA or tax professional for guidance specific to your financial situation.