In the United States, there are nine states that have a flat income tax. Kentucky is one of these states. This is different from the federal income tax, which is progressive. A progressive tax system features higher rates for levels of income that are higher. No matter the income of the individual, the state income tax is 5%.
The sum of your Kentucky taxable income is the final calculation of certain subtractions and additions to the federal adjusted gross income (AGI). In order to calculate the precise amount of taxes owed, taxpayers in Kentucky need to make these adjustments. Using this Kentucky state tax guide, we'll walk you through all of the information you may need to tackle the upcoming tax season.
Leave the calculating to us—by using our Pennsylvania state income tax calculator you can gain valuable insight on the numbers you can expect to see on your tax bill or return check.
Before we get into Kentucky’s lengthy list of state tax laws, let’s dive into the differences between state and federal taxes. Next, we’ll lay out the fundamental tax rates you should know about as a Bluegrass State resident.
State taxes vs. federal taxes
One of the most common tax mistakes taxpayers make is assuming there is no distinction between state and federal tax responsibilities and returns. Unless you’re a resident of Texas, Florida, Nevada, Washington, South Dakota, Alaska, or Wyoming, tax season means filing two separate returns. But what are the differences between state and federal taxes?
Federal taxes are government taxes levied by the Internal Revenue Service (IRS). Each form of taxation, be it income tax, estate tax, or gift tax, is governed by a separate body of law. Every federal tax is constructed using standardized rates and structures. This means the same set of regulations and restrictions apply to all Americans across each of the 50 states.
State taxes, on the other hand, are controlled and collected by each state’s independent government. This means state tax regulations are subject to change on a state to state basis. State tax systems work on either flat or progressive income tax systems. Depending on your state of residence, you may be subject to a flat-rate income tax rate or a scaled-rate that employes a bracketed structured.
Quick facts: Kentucky state tax rates
Kentucky Taxes: Quick Facts
Income tax: 5%
Sales tax: 6%
Property tax: 0.86%
Kentucky State Tax Brackets
In the state of Kentucky, there is a flat income tax rate. Because the state employs a flat-rate tax system, there are no Kentucky tax brackets. On the other hand, there are multiple tax brackets on the federal level. The bracket threshold varies for single or joint filers. The Kentucky income tax rate is 5% for all personal income.
Annual 2019 Tax Burden ($75,000/yr income)
Total Estimated Tax Burden
Remaining Income = $66,105
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Capital gains tax refers to a tax that is levied on the profit from capital asset sales. Some examples of capital assets include property, stock, personal items, and businesses. Capital gains are taxable at both the state and federal levels. Capital gains are taxed as regular personal income in Kentucky, meaning they’re subject to the standard income tax rate of 5%.
Kentucky State Sales Tax
The Kentucky state sales and use tax is imposed at a rate of 6% of the purchase price or gross receipts. The sales tax is imposed on any gross receipts from the sale of certain services and the retail sale of digital property or tangible personal property.
The use tax is imposed on the price of purchase for any digital property or tangible personal property bought for use, storage, or consumption. In general, the use tax is viewed as a backstop for the sales tax and is applicable to any property bought outside of the state of Kentucky for use, consumption, or storage in-state.
Kentucky Excise Tax
Alcohol Excise Tax in Kentucky
Alcoholic beverages like liquor, wine, and beer are subject to traditional sales taxes. They are also subject to excise taxes on both the state and federal levels. Typically, excise taxes are imposed on a per-unit basis. In general, excise taxes are applied per gallon for liquids.
Alcohol excise taxes in Kentucky are collected from the merchant selling the alcohol instead of the end consumer purchasing the alcohol. However, in most cases, the merchant simply passes the excise taxes directly to the consumer by raising the sale price of the alcohol.
You can expect to pay the following tax rates on your favorite libations:
Tobacco Excise Tax in Kentucky
It is prohibited to distribute untaxed tobacco products in the state of Kentucky before obtaining from the Department of Revenue a license. Retailers cannot buy untaxed tobacco products unless the retailer is a distributor who is licensed and pays the excise tax on the purchase price of the products to Kentucky's Department of Revenue.
A tobacco excise tax also applies to smokeless tobacco products, chewing tobacco, and smoking tobacco, and other forms of tobacco prepared for the purpose of smoking, chewing, or both. The tax also applies to any type of tobacco, other than cigarettes or reference cigarettes, that can be placed in the oral cavity of the individual.
Tobacco products (omitting snuff and chewing tobacco) are taxed at 15% of the price that the distributor chooses for the product. Retail distributors must pay a 15% tax of the total purchase price of tobacco products that are untaxed.
Kentucky tobacco and snuff tax: 15%/wholesale price + federal excise taxes
Gasoline Excise Tax in Kentucky
In the state of Kentucky, the excise tax on gasoline is about $0.26 per gallon. The excise tax is $0.23 per gallon for diesel and $0.26 per gallon for gasohol. Gasoline and other fuel products are subject to excise taxes at both the state and federal levels in the Bluegrass state. As it is with other excise taxes in Kentucky, the gas tax is included in the pump price.
Fuel vendors are responsible for making the payments for fuel excise taxes. However, in general, fuel vendors will pass the taxes to the end consumers by raising the retail price of the fuel.
Kentucky State Property Tax
Rejoice, Kentucky residents! The Bluegrass state is home to property tax rates considerably lower than those of other states. The property tax rate is 0.86% on average in Kentucky.
Where you live in the state of Kentucky will have an impact on your tax rates. There are a total of 120 counties in the state of Kentucky and each county houses a different tax rate. The highest property tax rate in the state is in Campbell County at 1.18% whereas the lowest property tax rate in Kentucky is 0.56% in Carter County.
January 1st is the assessment date for all state property. Typically, there is a mass appraisal for the assessment of real estate in Kentucky. In general, this technique involves the use of data on sales within the marketplace, as well as factors that are property-specific like date of construction and home size. The end result is a calculation of the market value for every home. If a homeowner disagrees with the home's assessed value, they can appeal the assessment with the county clerk.
The state government calculates the Kentucky state tax rate during the summer months. The tax bills are then sent out in the fall, typically by October 1st or November 1st. In places where the bills are sent by October 1st, homeowners can receive a 2% discount by paying their bill by November 1st. There is a 5% penalty for homeowners who fail to pay the bill by January. The penalty is 10% by February. The additional penalty is added on top of the amount due January after the first penalty.
Kentucky districts include counties, cities, school districts, and other forms of special districts. The districts set their own rates every year based on the district's total assessed value and amount of revenue they require. Therefore, the rates change every year. Typically, there are no drastic changes from year to year.
Kentucky Estate & Inheritance Tax
An estate tax refers to a tax that the government levies on the estate of any individual who has died recently. The tax is levied prior to the assets or money in the estate being passed on to the heirs of the person. Sometimes, the estate tax is referred to as a death tax. The estate tax is only applicable to estates that are worth above a certain amount. The government levying the tax is legally responsible for determining this amount.
There is no estate tax in Kentucky. The state of Kentucky is one of the 38 states in the United States without an estate tax.
The inheritance tax is not identical to the estate tax. The inheritance tax is levied on assets and money that have already been passed on to the heirs of the person who died. Beneficiaries are required to pay the inheritance tax. While there is no estate tax in Kentucky, there is an inheritance tax. The factors that have an impact on the Kentucky tax rate include the relationship of the beneficiary to the grantor and the size of the inheritance.
The three relationship classes for the inheritance tax in Kentucky are as follows:
Class A encompasses parents, spouses, children (by blood or adopted/raised during infancy), stepchildren, siblings and grandchildren, as well as half-siblings. These individuals are completely exempt from Kentucky's inheritance tax.
Class B encompasses nieces, nephews, half-nephews, aunts, uncles, children-in-law, and great-grandchildren. The individuals enjoy an exemption of about $500. After these exemptions, these individuals are taxed in brackets with rates that range from 4% to 16%.
Class C encompasses all other forms of relations. This class encompasses religious, educational, and other institutions not exempted by law. These institutions and individuals are exempt $500 and then tax in brackets with rates that ascend ranging from 6 to 16%.
There is no gift tax in the state of Kentucky. For the federal gift tax, there is an exemption of $15,000 every year for every gift recipient. Therefore, if someone in the state of Kentucky gifts more than $15,000 in a single year, this must be reported to the IRS. Excess counts against $11.18 million, which is the lifetime gift tax exemption.
Kentucky State Tax Credits
In the state of Kentucky, there are four common non-refundable individual income tax credits that taxpayers can use when they file their tax return.
Personal tax credits are submitted with Form 740-NP or Form 740 and are reported on Schedule ITC. For every individual reported on the tax age who is 65 years old or older, there is a $40 tax credit. Individuals who are legally blind are also eligible for $40 tax credit. If an individual is legally blind and aged 65 years or older, they are eligible for both tax credits for a total of $80.
Kentucky National Guard members can claim $20 tax credit. On the other hand, military reserve members are not eligible for a tax credit.
Nonrefundable Family Size Tax Credit
The family size tax credit is based on the size of the family and the modified gross income. If the total modified gross income is less than a certain amount, the individual may qualify for the family size tax credit in Kentucky.
Education Tuition Tax Credit
An education tuition tax credit equal to 25% of the amount of the Lifetime Learning Credit or federal American Opportunity Credit is available. The credit is only applicable to undergraduate studies. Also, this credit phases out for individuals with higher incomes. This credit is applicable to most opportunities for higher education in Kentucky and can be used for up to five years.
Child and Dependent Care Credit
Taxpayers in Kentucky who are claiming child and dependent care credit will use Form 740 or 740-NP to claim this credit. The credit is claimed on Form 740 or Form 740-NP's line 25 by entering the federal credit amount from federal Form 2441 and scaling by 20%.
Kentucky State Tax Exemptions and Deductions
The tax reform bill in Kentucky preserved the commonwealth standard deduction. Married couples filling separately but on a combined return are able to claim this deduction for each person. On the other hand, joint filers are only able to claim this standard deduction once.
If you don't want to claim a standard deduction, you have the option of itemizing your deductions on your state tax return. However, Kentucky eliminated multiple itemized deductions in 2018.
Taxpayers can claim the following deductions in the state of Kentucky:
Mortgage discount points
Qualifying mortgage insurance premiums
Home mortgage interest
Some deductions like premiums paid for long-term care insurance or health insurance are no longer deductible in the state of Kentucky.
Many forms of retirement income that are federally taxable are not taxable at the state-level in Kentucky. Social security benefits tend to be exempt. Retirement income is also exempt from Kentucky governmental retirement systems. Annuity and pension income up to $31000 is exempt. Interest from treasury notes and other federal obligations is also exempt. On the other hand, interest income from other states' municipal bonds is taxable. Active duty military pay is not subject to state tax Kentucky.
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You can use a Kentucky tax calculator to calculate your state tax refund.
When you choose Community Tax, you gain access to our intelligent Kentucky tax calculator. Enter tax season with this user-friendly calculator— all you’ll need to do is enter the following information:
Adjusted gross income (AGI)
Number of exemptions
Number of dependents
List of tax credits or deductions you qualify for
Find the peace of mind you need by checking out our many tax tips and tax preparation services to ensure your tax season calculations and finalizations are as smooth as possible.
How to Pay Kentucky Taxes
The Kentucky Department of Revenue allows residents to pay taxes online, by phone, or by mail.
To pay your taxes online, you can use eFile as provided by the Department of Revenue. Currently, the Department of Revenue accepts payment by electronic check or credit card. Call (502) 564-4581 to speak to the Department of Revenue if you have any questions.
You can also pay your taxes online at Official Payments Corporation. American Express, Visa, Discover Network, MasterCard credit and debit cards, and other types of payment like Bill Me Later are accepted. You can use a Visa Debit Card or MasterCard to make a debit card payment. You can use any debit card with Pulse, Nyce, or Star logos.
You will need to pay a convenience fee for the service. The fee amount will depend on the amount that you pay to the Department of Revenue.
Pay by Phone
You can call the Official Payments toll-free at 1-800-272-9829 to pay your taxes by phone. This service is automated and available 24 hours, 7 days a week. You will receive a confirmation number at the end of your call. It is important to save this confirmation number in your records as proof of payment.
There is also a convenience fee for paying your taxes by phone. The amount you pay in fees will depend on the amount of your tax payment. You can call the Department of Revenue at (502) 564-4581 if you need assistance with payments.
Pay by Mail
You can also send a money order or check in the amount of estimated tax. The check or money order should be made payable to Kentucky State Treasurer. You should send the check or money order along with the extension payment voucher to the following address:
Kentucky Department of Revenue PO Box 1190 Frankfort, KY 40602-1190
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The state of Kentucky demands a 6% sales tax for thoroughbred stud fees. The state scatters the proceeds from this sales tax across multiple funds to encourage horse breeding operations.
Kentucky’s alcoholic beverage taxes are the sixth-highest in the nation
Tax in Kentucky is calculated during the summer, and tax bills are mailed to homeowners during the fall.
Summary of Federal Taxes
Kentucky taxpayers should keep in mind that every time tax season rears its head, they are responsible for filing and paying both state and federal taxes by April 15th of every fiscal year.
In hopes of staying on the IRS’ good side, you’ll want to handle all data collecting and number crunching with meticulous care. You may even consider outsourcing your seasonal civic duties to a tax professional to gain the assurance you need before submitting your return. Count on Community Tax to get you the most out of the upcoming tax season.
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