Kentucky Income Tax Calculator 2026

Kentucky’s 3.5% flat tax in 2026

Kentucky taxes income at a flat 3.5% for 2026, down from 4% in 2024 and 2025. You start with federal AGI, make the Kentucky modifications on Schedule M (such as the pension exclusion), subtract the $3,360 standard deduction or your itemized deductions, and multiply by 3.5%.

Worked example: a single filer with $80,000 of wages owes (80,000 − $3,360) × 3.5% = $2,682.40 in state tax, an effective rate of 3.35%. If that person lives in Louisville, the 2.2% occupational license tax adds about $1,760, more than half the state bill.

Married couples: one deduction, two options

Kentucky allows a single $3,360 standard deduction on a joint return, not two. Couples where both spouses have income can instead file separately on a combined return (both on one Form 740), which lets each spouse claim their own standard deduction. With a flat rate, that typically saves the tax on one extra deduction, about $118.

What Kentucky does not tax

Kentucky departs from federal rules in several ways that lower state tax for retirees and service members.

• Social Security benefits are fully exempt.
• Pension and annuity income, including IRAs and 401(k)s, is excluded up to $31,110 per taxpayer (2025 amount, Schedule P may be required).
• U.S. Railroad Retirement benefits are exempt.
• Active-duty military pay is exempt.
• Federal deductions for qualified tips, overtime and car-loan interest are not allowed, because Kentucky has not adopted those federal changes.

Kentucky credits

The Family Size Tax Credit reduces or eliminates tax for households with modified gross income up to 133% of the federal poverty level threshold ($15,650 for a family of one in 2025); the credit shrinks as income rises, and family size is capped at four. Kentucky also allows a child and dependent care credit equal to 20% of the federal credit, and an education tuition credit claimed on Form 8863-K.

Filing Form 740 or 740-NP

Full-year residents file Form 740; part-year residents and nonresidents file Form 740-NP; residents of the seven reciprocal states with only Kentucky wages file Form 740-NP-R to recover tax withheld in error. The 2026 return is due April 15, 2027. An extension of time to file can be requested, but interest and penalties apply to tax not paid by April 15.

Local occupational license taxes are separate from the state return and are paid to the city or county, normally through payroll withholding.