KENTUCKY PAYCHECK CALCULATOR
Kentucky’s flat income tax rate dropped to 3.5% for 2026, down from 4% the year before. Governor Andy Beshear signed the cut into law in February 2025 with support from both parties, the fourth rate reduction since Kentucky started this phase-down back in 2022 at a starting point of 5%. Republican lawmakers have made clear they’d like to keep cutting toward zero if state revenue holds up.
A Kentucky paycheck gets trimmed by federal income tax, Social Security, Medicare, and the flat 3.5% state rate. Work in Louisville, Lexington, or a handful of other cities, though, and there’s a second local tax on top of that too, something Kentucky calls an occupational license tax. Curious how Kentucky compares to its neighbors? Check the calculators for Indiana, Ohio, Virginia, and Tennessee.
Calculate Your Take-Home Pay
Estimate only. Does not include local occupational license taxes (Louisville, Lexington, and other cities charge these separately), local sales tax, or pre-tax deductions like 401(k) or health insurance. Consult a tax professional for exact figures.
Every Deduction on a Kentucky Paycheck
- Federal income tax: Withheld based on your W-4 and the 2026 IRS brackets, which run from 10% to 37% depending on taxable income and filing status.
- Social Security tax: A flat 6.2% on wages up to $184,500 for 2026, capping out at $11,439 for the year.
- Medicare tax: 1.45% on all wages with no cap, plus an extra 0.9% once you cross $200,000 as a single or head of household filer, or $250,000 filing jointly.
- Kentucky state income tax: A flat 3.5% on Kentucky taxable income, after subtracting the $3,360 standard deduction.
- Occupational license tax (if applicable): Many cities and counties charge this on top of the state rate. Louisville and Jefferson County combine for 2.4%, Lexington-Fayette runs about 2.25%.
- Pre-tax deductions: 401(k) contributions, HSA contributions, and employer health insurance premiums reduce your taxable wages before any of the above taxes are calculated.
Kentucky’s Rate Cut and the Local Tax Layer
Kentucky’s flat tax started at 5% in 2022, before House Bill 8 set up a trigger mechanism that year to gradually lower it whenever state revenue growth cleared certain benchmarks. The rate dropped to 4.5% in 2023, then 4% for 2024 and 2025. House Bill 1, sponsored by Republican Rep. Jason Petrie and signed by Democratic Governor Andy Beshear on February 6, 2025, locked in the next step down to 3.5% starting January 1, 2026, a projected $718 million annual reduction in state revenue once fully phased in.
Kentucky’s Flat Tax Rate, Year by Year
| Tax Year | State Rate |
|---|---|
| 2022 | 5.0% |
| 2023 | 4.5% |
| 2024 | 4.0% |
| 2025 | 4.0% |
| 2026 | 3.5% |
What the state rate alone doesn’t capture is Kentucky’s local occupational license tax system, similar in spirit to Indiana’s county income tax but assessed by individual cities and counties rather than uniformly across the state.
Sample Local Occupational Tax Rates (2026)
| City / County | Local Rate | Combined with State (3.5%) |
|---|---|---|
| Louisville / Jefferson County | 2.4% | 5.9% |
| Lexington-Fayette | 2.25% | 5.75% |
| Covington | 2.45% | 5.95% |
Someone working in downtown Louisville pays close to 6% combined income tax once the state and local layers stack together, while a resident of a rural county with no occupational tax pays only the flat 3.5% state rate.
Kentucky vs Nearby States at $70,000 (Single)
| State | State Income Tax Owed | Estimated Net Pay |
|---|---|---|
| Kentucky (state only, no local) | $2,332 | $55,743 |
| Indiana | $2,036 | $56,039 |
| Ohio | $1,143 | $56,932 |
| Virginia | $3,211 | $54,864 |
| Tennessee | $0 | $58,075 |
Kentucky sits in the middle of this pack, clearly ahead of Virginia’s near-flat 5.75% system but behind Ohio’s new $26,050 exemption structure and Indiana’s lower flat rate. Add a Louisville or Lexington occupational tax and Kentucky’s real-world number moves closer to Virginia’s than the state-only figure suggests.
Kentucky’s Tax Trade-Offs
| Category | Kentucky | National Average |
|---|---|---|
| State income tax | Flat 3.5% | ~5.5% |
| Sales tax | Flat 6% statewide, no local add-on | ~7.0% combined |
| Effective property tax rate | 0.74% | ~1.0% |
| Inheritance tax | Yes, for non-immediate family only | Rare (only a handful of states) |
| Tax Foundation 2026 ranking | 25th overall | N/A |
Kentucky’s inheritance tax is the outlier here. Most states dropped this kind of tax decades ago, but Kentucky still applies it, though anyone in the immediate family, spouses, children, parents, grandchildren, and siblings, pays nothing at all. It only bites on inheritances passing to more distant relatives, friends, or organizations, with rates from 4% to 16% depending on how the assets get divided.
Retirees in Kentucky
Kentucky treats retirement income generously on the state tax side. Social Security is fully exempt regardless of income. On top of that, Kentucky excludes up to $31,110 per person of pension, IRA, and 401(k) distributions from state tax, and unlike similar exclusions in other states, there’s no minimum age requirement to claim it. A retired couple splitting withdrawals can shield over $62,000 combined before any of it gets taxed at the 3.5% rate. The one thing to watch is the inheritance tax mentioned above, which matters most for retirees planning to leave assets to nieces, nephews, or more distant relatives rather than a spouse or children.
Federal Tax Bracket Example: $70,000 Single Filer
Start with $70,000 in gross wages. Subtract the 2026 federal standard deduction of $16,100, leaving $53,900 in taxable income. Here’s how the brackets apply:
- 10% on the first $12,400 = $1,240
- 12% on the next $38,000 (from $12,400 to $50,400) = $4,560
- 22% on the remaining $3,500 (from $50,400 to $53,900) = $770
Total federal tax: $6,570, an effective rate of about 9.4% on gross pay. Add Kentucky’s flat 3.5% state rate after the standard deduction, and the combined federal-plus-state bite for this filer still lands lighter than states with steeper brackets or no comparable retirement exclusions.
Frequently Asked Questions
What is Kentucky’s state income tax rate in 2026?
A flat 3.5%, down from 4% in 2025. Governor Andy Beshear signed House Bill 1 on February 6, 2025, cutting the rate effective January 1, 2026, continuing a phase-down that started at 5% back in 2022.
What is Kentucky’s standard deduction for 2026?
$3,360, up $90 from 2025. Unlike most states, Kentucky applies the same standard deduction amount to every filing status, single, married, or head of household, and it does not double for married couples filing jointly.
What is Kentucky’s occupational license tax?
A local income tax charged by many Kentucky cities and counties on top of the state rate. Louisville and Jefferson County charge 2.2% plus 0.2% for a combined 2.4%, Lexington-Fayette charges about 2.25%, and Covington charges around 2.45%.
Is Social Security taxed in Kentucky?
No. Kentucky fully exempts Social Security benefits from state income tax. Kentucky also excludes up to $31,110 per person of pension, IRA, and 401(k) distributions from state tax, with no age requirement attached.
Does Kentucky have an inheritance tax?
Yes, and it’s one of only a handful of states that still does. Spouses, children, parents, grandchildren, and siblings are fully exempt. More distant relatives and unrelated heirs face rates between 4% and 16% depending on the relationship and the size of the inheritance.
How high is sales tax in Kentucky?
A flat 6% statewide with no local additions anywhere in the state, so the rate you pay in Louisville is the same as the rate in a small rural county.
Kentucky’s headline rate keeps falling, but the real number on a paycheck depends heavily on whether the job sits inside a city with its own occupational tax. Two Kentuckians earning the same salary, one in downtown Louisville and one in a rural county without a local tax, can end up with a gap of more than two percentage points in what actually reaches their bank account.