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Kentucky state income tax

By Brent Chudoba, editor Updated

Kentucky has a state income tax. It is flat, with a top marginal rate of 3.5%. Kentucky imposes a flat tax on all taxable income for residents (no graduated brackets). The rate was 4% for tax year 2025 and dropped to 3.5% for tax year 2026 under House Bill 1 (2025 Regular Session), which lowered the rate under the statutory phase-down mechanism in KRS 141.020. The Department of Revenue's Employer Payroll Withholding guidance confirms: "The Kentucky Withholding Tax rate will be 3.5% for tax year 2026." Capital gains are taxed as ordinary income (no special lower rate).

Does Kentucky have a state income tax?

Yes. Kentucky taxes individual income on a flat schedule topping out at 3.5%. Kentucky imposes a flat tax on all taxable income for residents (no graduated brackets). The rate was 4% for tax year 2025 and dropped to 3.5% for tax year 2026 under House Bill 1 (2025 Regular Session), which lowered the rate under the statutory phase-down mechanism in KRS 141.020. The Department of Revenue's Employer Payroll Withholding guidance confirms: "The Kentucky Withholding Tax rate will be 3.5% for tax year 2026."

Kentucky income tax at a glance (reviewed August 29, 2026)
ItemKentucky
State income taxYes, flat
Top marginal rate3.5%
Capital gainsTaxed as ordinary income, up to 3.5%
State sales tax6%
Avg. property tax rate0.74% of home value
Estate / inheritance taxInheritance tax

How does Kentucky tax capital gains?

Kentucky has no separate, lower rate for capital gains. They are taxed as ordinary income at the same rates as your wages, up to 3.5%, on top of federal capital gains tax. See how capital gains tax works in 2026.

What about retirement income in Kentucky?

Retirement income is taxed differently from wages in many states. For how Kentucky treats Social Security, pensions, and 401(k)/IRA withdrawals, see Kentucky retirement taxes.

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