Kentucky income tax rate for 2025 and 2026: 4% and 3.5%

Kentucky’s income tax is a single rate on net income: 4% for 2025 and 3.5% for tax years from 2026, under KRS 141.020 as amended by House Bill 1 of 2025, signed February 6, 2025. The Department of Revenue (DOR) uses 3.5% in its 2026 withholding formula. The rate was 5% from 2018 to 2022 and 4.5% for 2023.

Further cuts depend on budget triggers: the state’s rainy-day fund must reach 10% of General Fund revenue and revenue must exceed spending by enough to pay for the cut, and even then only the General Assembly can lower the rate. The State Budget Director reported that the test was not met for 2027 (short by $7,587,282) or for 2028, so under current law the rate stays at 3.5% unless legislators change it.

A Kentucky return starts from federal adjusted gross income, makes Kentucky adjustments, and subtracts the Kentucky standard deduction, $3,270 for 2025 and $3,360 for 2026 (only one per joint return), or itemized deductions. Kentucky lets you itemize even if you did not federally, but it disallows deductions for taxes, medical expenses and several others, and from 2026 limits mortgage interest to your main home. The standard deduction rises with inflation; DOR has announced $3,470 for 2027.

For example, a single filer with $60,000 of wages has $56,730 of Kentucky taxable income for 2025 and owes $2,269 at 4%. For 2026, after the $3,360 deduction, the tax at 3.5% is about $1,982. Any local occupational tax is separate.

The July 2025 federal tax law (Public Law 119-21) created deductions for 2025 through 2028 for qualified tips (up to $25,000), overtime pay (up to $12,500, or $25,000 joint), car loan interest (up to $10,000) and an extra $6,000 for people 65 or older. For 2025, Kentucky followed the federal code only as of December 31, 2024, and DOR says qualified tips, overtime income and car loan interest “are not deductible on the Kentucky return.”

For 2026, House Bill 757 moves Kentucky’s conformity date to December 31, 2025 but expressly disallows the tips, overtime and car loan interest deductions (KRS 141.019). Kentucky also disallows personal exemption deductions under the federal code, which is where the senior deduction sits, though DOR has not named it specifically.

Retirement income above the exclusions is taxed at the flat rate.

Kentucky’s credits are nonrefundable: they reduce tax but are not paid out beyond it. We found no Kentucky earned income credit on the return.

Many Kentucky cities, counties and school districts charge an occupational license tax on wages and business profits earned there, filed and paid separately from the state return; employers usually withhold it. Local “compensation” includes 401(k) and cafeteria plan deferrals, so it can be higher than the state wage figure. School district occupational taxes are capped at 0.5% and, under a 2026 law, cannot be created or raised from January 1, 2027.

Full-year residents file Form 740; part-year residents and nonresidents with Kentucky income file Form 740-NP. You must file if your modified gross income is above the family size threshold and your Kentucky AGI is above the standard deduction, and anyone with Kentucky tax withheld must file to get it back. Free filing is available through DOR’s KY File portal.

2025 returns were due April 15, 2026, and 2026 returns are due April 15, 2027. A federal extension counts for Kentucky; otherwise file Form 740EXT with a reasonable cause, which cannot be inability to pay. Extensions run up to six months, and interest runs on tax paid after April 15.

Check a Kentucky refund at refund.ky.gov with the primary Social Security number on the return and the exact refund in whole dollars; it covers current-year original returns, is updated nightly, and shows e-filed returns within about 72 hours. For prior-year or amended refunds, call (502) 564-4581.

DOR’s timing estimates differ by page: refund.ky.gov says about 2 to 3 weeks for an e-filed return with direct deposit and 8 to 12 weeks for paper, plus a week for a paper check, while DOR’s income tax page says 4 to 6 weeks for e-file. If your address or bank account changed since last year, expect extra identity checks.

Kentucky has reciprocal agreements with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin, mostly covering wages and salaries (Virginia’s requires commuting daily). A resident of one of those states who works in Kentucky gives the employer Form 42A809 to stop Kentucky withholding, and files Form 740-NP-R to get back Kentucky tax that was withheld. The agreements do not cover gambling or partnership and S corporation income, or anyone who lives in Kentucky more than 183 days in the year, and they do not cover local occupational taxes.

Kentucky residents working in those states get any wrongly withheld tax back from that state. You are a Kentucky resident if Kentucky is your domicile, or if you live here more than 183 days in the year. Part-year residents pay Kentucky tax on all income after moving in and Kentucky-source income before.