Kentucky lowered its income tax rate in 2023 but expanded its sales tax to include 34 more service categories. Below, we explain various Kentucky state taxes affecting retirement income, such as sales tax, inheritance tax, and property taxes.
For information regarding taxes in other states, see Retirement Taxes by State.
Kentucky Tax Rates
|State Sales Tax||6%|
|Avg State/Local Sales Tax||6%|
|Gas Tax||$0.25 per gallon|
|Diesel Tax||$0.22 per gallon|
|Cigarette Tax||$1.10 per pack|
|Effective Tax Rate:||4.5%|
|Social Security Tax||None|
|Federal Income Tax Deduction:||None|
Kentucky State Taxes Explained
Kentucky Sales Tax
6%. Kentucky does not levy a local tax. Effective January 2023, the state will impose a sales tax on vehicle rentals, peer-to-peer car sharing rentals, taxicab, limousine services, and more. In 2024, the state will introduce a 3% tax on electric vehicle power and electric vehicle registration.
Kentucky Income Taxes
A flat rate of 4.5%, down from 5% in 2022.
Kentucky Property Taxes
Kentucky’s effective average property tax rate is 0.86%, or $1,210 on the average assessed home value of $141,000.
Kentucky has a Homestead Exemption on the assessed value of a qualifying single-unit residential property. This tax break is adjusted every two years based on the cost of living index. Homeowners aged 65 and older or classified as totally disabled by a federal or state agency may be eligible. Visit the Kentucky Homestead Exemption page for more information.
Kentucky Retirement Taxes
Social Security and Roth IRA distributions are exempt. Kentucky excludes up to $31,110 for state, private and military retirement plans. Kentucky taxes military retirement pay the same as any other retirement income: exclude $31,110 from the Kentucky tax return.
Kentucky Estate and Inheritance Taxes
Kentucky has no estate tax. The inheritance tax is assigned to one of three classes.
- Class A beneficiaries are closest relatives (spouse, parent, child, grandchild, brother and sister). These individuals pay no tax.
- Class B beneficiaries are nieces, nephews, half-nieces, half-nephews, daughters-in-law, sons-in-law, aunts, uncles and great-grandchildren. The inheritance tax rate ranges from 4% to 16%, depending on the value of the inherited property. Kentucky excludes the first $1,000 of property value from inheritance tax.
- Class C individuals are all relatives not otherwise classified, including nieces and nephews by marriage and great-nieces and great-nephews. These heirs are taxed 6% to 16% on property received with a $500 exclusion.