Question 1

What is Kentucky's state income tax rate for 2025?

Accepted Answer

Kentucky has a flat state income tax rate of 4.0% for tax year 2025, following the rate-reduction schedule in HB 1 (2022) and HB 8 (2024) that ratcheted the rate from 5.0% (TY2022) down to 4.5% (TY2023) and 4.0% (TY2024 and TY2025). Further scheduled reductions toward 3.5% depend on Kentucky state general-fund revenue triggers being met in successive fiscal years.

Question 2

Does Kentucky have local income taxes?

Accepted Answer

Yes. Most Kentucky cities and counties impose an occupational license tax (functionally a local income tax) on wages earned within the jurisdiction, typically 0.5% to 2.5%. Louisville-Jefferson County Metro imposes 2.2% (residents) or 1.45% (non-residents); Lexington-Fayette Urban County 2.25%; Bowling Green 1.85%. These local taxes are separate from Kentucky state income tax and are typically withheld by employers.

Question 3

Does Kentucky tax retirement income?

Accepted Answer

Kentucky exempts up to $31,110 of retirement income per taxpayer for tax year 2025, applied to pensions, 401(k) distributions, IRAs, annuities, and other qualified retirement plan payments. Social Security benefits are fully exempt regardless of amount. Kentucky public-employee retirement (KERS, CERS, KTRS) receives additional treatment: benefits attributable to service before January 1, 1998 are 100% exempt in addition to the general $31,110 exclusion.

Question 4

What is Kentucky's standard deduction for 2025?

Accepted Answer

For tax year 2025, Kentucky's standard deduction is $3,270 for all filing statuses (single, MFJ, MFS, HoH), inflation-indexed annually under KRS 141.081. Kentucky does not offer a personal exemption or dependent exemption on the state return; the standard deduction is the primary shelter for low-income filers.

Question 5

Does Kentucky have reciprocal agreements with other states?

Accepted Answer

Yes. Kentucky has reciprocal income-tax agreements with seven states: Illinois, Indiana, Michigan, Ohio, Pennsylvania, Virginia, and Wisconsin. Residents of those states who work in Kentucky pay state income tax only to their home state on Kentucky wages, and vice versa. Note that Kentucky's local occupational taxes are not covered by these agreements, so cross-border commuters may still owe local Kentucky tax where they work.

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