Kentucky Income Tax Rates & Brackets (Tax Year 2025 — Filed in 2026)
⚠️Informational only — not legal or tax advice.
Tax year covered: 2025 (returns filed in 2026)
Applies to: Income earned January 1 – December 31, 2025
Returns filed: January – April 2026
Last verified: February 19, 2026
Table of Contents
- Quick Reference
- Key Takeaways
- Quick Questions
- Kentucky Income Tax Rate and Structure (2026)
- Statutory Authority
- Who Must File Kentucky Income Tax
- What Income Is Taxable in Kentucky
- Standard Deduction and Exemptions
- Kentucky Income Tax Credits
- Filing Deadlines
- Filing Options for Kentucky Income Tax
- Local Income Taxes in Kentucky
- Special Considerations for Kentucky Income Tax
- Tax Residency vs. Domicile in Kentucky
- Documentation Commonly Requested in Residency Audits
- Military Personnel
- Retirees
- Students
- Part-Year Residents
- Common Tax Filing Situations
- Penalties and Interest
- Forms and Publications
- Information Verification Log
- Where to Check for Updates
- Resources
- Tax Glossary
- Update History
Quick Reference
Does Kentucky have income tax? Yes
Tax structure: Flat rate
Tax rate: 4%
Standard deduction (All filing statuses): $3,270
Local income tax: Yes — local occupational taxes levied by cities and counties
Official source: https://revenue.ky.gov/Individual/Individual-Income-Tax/Pages/default.aspx
Key Takeaways
- Residents: Kentucky residents pay Kentucky income tax on income from all sources worldwide
- Non-residents: Non-residents pay Kentucky income tax only on Kentucky-source income
- Tax rate: Flat 4% rate applies to all taxable income (Tax Year 2025) — no graduated brackets
- Local income tax: Kentucky cities and counties may levy local occupational taxes; these are administered separately from state income tax
- Reciprocity: Kentucky has reciprocal agreements with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin (wages/salaries only)
- Primary forms: Form 740 (full-year residents), Form 740-NP (non-residents and part-year residents), Form 740-NP-R (non-residents from reciprocal states)
Source: https://revenue.ky.gov/Individual/Individual-Income-Tax/Pages/default.aspx
Quick Questions About Kentucky Income Tax
What is the Kentucky income tax rate for 2025?
Kentucky has a flat income tax rate of 4% for Tax Year 2025. All taxable income is taxed at this single rate, with no graduated brackets. The same 4% rate applies regardless of filing status or income level.
Does Kentucky have state income tax?
Yes. Kentucky imposes an individual income tax on all income earned by residents and on Kentucky-source income earned by non-residents. The tax is authorized under KRS Chapter 141.
What are the income tax brackets in Kentucky?
Kentucky does not use progressive tax brackets. For Tax Year 2025, all taxable income is taxed at a flat 4% rate. There is only one rate, applicable to all filers.
Is Social Security taxed in Kentucky?
No. Kentucky does not tax Social Security benefits. Social Security income remains exempt from Kentucky taxation under KRS 141.019.
Does Kentucky tax retirement income?
Kentucky provides a pension income exclusion of up to $31,110 per taxpayer for Tax Year 2025. This exclusion applies to pensions, annuities, 401(k) distributions, IRAs, and similar retirement plans. Government retirees (federal, Kentucky state, or local government) with service prior to January 1, 1998, may qualify for an exclusion greater than $31,110 using Schedule P.
Do I need to file a Kentucky income tax return?
Kentucky residents must file if their modified gross income exceeds the federal poverty level threshold for their family size. For Tax Year 2025, the threshold is $15,650 for a family of one, $21,150 for a family of two, $26,650 for a family of three, and $32,150 for a family of four or more. Modified gross income equals federal adjusted gross income plus interest from other states’ municipal bonds and pension income from qualifying lump-sum distributions.
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf and https://revenue.ky.gov/Individual/Individual-Income-Tax/Pages/default.aspx
Kentucky Income Tax Rate and Structure (2026)
The following tax rate and structure applies to income earned in 2025, reported on tax returns filed in 2026.
| Rate Snapshot | |
|---|---|
| Tax Attribute | Amount / Status |
| Tax Rate | 4% (flat) |
| Tax Structure | Flat rate — no brackets |
| Number of Brackets | 1 (single flat rate) |
| State Income Tax | Yes |
| Local Income Tax | Yes (occupational taxes levied by cities and counties) |
| Standard Deduction (All Filing Statuses) | $3,270 |
| Personal Exemption | None |
| Kentucky Flat Tax Rate 2026 | |
|---|---|
| All Filing Statuses — Single Flat Rate | |
| Taxable Income | Tax Rate |
| All taxable income | 4% |
How Kentucky taxable income is calculated:
- Start with federal Adjusted Gross Income (AGI)
- Apply Kentucky modifications (Schedule M) — subtracting eligible items such as the pension exclusion, Social Security, active duty military pay, etc.
- Subtract the Kentucky standard deduction of $3,270
- Multiply the resulting Kentucky taxable income by 4%
- Subtract applicable tax credits (e.g., Family Size Tax Credit, credits for taxes paid to other states)
Note on 2026: Kentucky’s tax rate for Tax Year 2026 (filed in 2027) will be 3.5%, with the standard deduction increasing to $3,360. This reduction was enacted under Kentucky’s income tax reduction framework tied to the Budget Reserve Trust Fund balance.
Source: https://revenue.ky.gov/Forms/Withholding%20Computer%20Formula.pdf (2025) and https://revenue.ky.gov/Forms/2026%20Withholding%20Formula.pdf (2026)
| Standard Deduction (Tax Year 2025) | |
|---|---|
| Kentucky uses a single standard deduction amount that applies to all filing statuses. Unlike the federal system, Kentucky does not vary the standard deduction by filing status. | |
| Filing Status | Standard Deduction |
| Single | $3,270 |
| Married Filing Jointly | $3,270 |
| Married Filing Separately | $3,270 |
| Head of Household | $3,270 |
The standard deduction is adjusted annually for inflation under KRS 141.081(2)(a).
Source: https://revenue.ky.gov/News/pages/kentucky-dor-announces-2025-standard-deduction.aspx
Statutory Authority
State income tax in Kentucky is authorized under the following legal framework:
Constitutional Authority:
Kentucky’s taxing authority is established in the Kentucky Constitution, Section 171, which authorizes the General Assembly to levy taxes on property, income, and other items as determined by law.
Primary Statutory Authority:
- KRS 141.020 — Levy of individual income tax; establishes the tax rate on residents and non-residents
https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=47369 - KRS 141.019 — Adjusted gross income definitions and modifications for Kentucky purposes (exclusions and inclusions)
https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=47363 - KRS 141.010 — Definitions applicable to individual income tax
https://apps.legislature.ky.gov/law/statutes/chapter.aspx?id=37674 - KRS 141.070 — Credit for income taxes paid to other states; reciprocal agreements authority
https://apps.legislature.ky.gov/law/statutes/chapter.aspx?id=37674 - KRS 141.081 — Standard deduction; annual inflation adjustment
https://apps.legislature.ky.gov/law/statutes/chapter.aspx?id=37674
Full Chapter 141 (Income Tax):
https://apps.legislature.ky.gov/law/statutes/chapter.aspx?id=37674
Administrative Regulations:
- 103 KAR 17:010 — Individual income tax filing requirements; residency and domicile definitions
https://apps.legislature.ky.gov/law/KAR/titles/103/017/010/ - 103 KAR 17:020 — Combined and separate return filing rules for married taxpayers
https://apps.legislature.ky.gov/law/kar/titles/103/017/020/ - 103 KAR 17:140 — Reciprocal agreements; list of reciprocal states and income types covered
https://revenue.ky.gov/DOR%20Training%20Materials/103%20KAR%2017.140.%20Individual%20income%20tax%20-%20reciprocity%20-%20nonresidents.pdf - 103 KAR 17:130 — Military servicemember income tax filing requirements
https://apps.legislature.ky.gov/law/kar/titles/103/017/130/
Legislative History:
Kentucky first enacted a modern individual income tax in 1936. The tax rate was reduced from 5% to 4.5% for Tax Year 2023, then from 4.5% to 4% for Tax Year 2024, and remains at 4% for Tax Year 2025. Kentucky law establishes a framework for future rate reductions tied to the Budget Reserve Trust Fund balance under KRS 141.020.
Source: https://apps.legislature.ky.gov/law/statutes/chapter.aspx?id=37674 and https://revenue.ky.gov/Individual/Individual-Income-Tax/Pages/default.aspx
Who Must File Kentucky Income Tax
Residents
Kentucky law requires full-year residents to file a state income tax return (Form 740) if their modified gross income exceeds the federal poverty level threshold for their family size.
For Tax Year 2025, the filing thresholds are:
| Modified Gross Income Threshold by Family Size | |
|---|---|
| Family Size | Modified Gross Income Threshold |
| 1 person (single, or married living apart all year) | $15,650 |
| 2 persons (married couple, or single with 1 dependent) | $21,150 |
| 3 persons | $26,650 |
| 4 or more persons | $32,150 |
Modified gross income = federal adjusted gross income + interest income from other states’ municipal bonds + pension income from qualifying lump-sum distributions.
Residents must also file if Kentucky income tax was withheld and they wish to claim a refund, even if income is below the threshold.
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Part-Year Residents
Part-year residents (individuals who moved into or out of Kentucky during 2025) file Form 740-NP. They report income earned during their period of Kentucky residency plus any Kentucky-source income earned while a non-resident.
Non-Residents
Non-residents who earned income from Kentucky sources during 2025 must file Form 740-NP. Kentucky-source income includes wages earned while physically working in Kentucky, business income from Kentucky operations, and rental income from Kentucky property.
Exception — Reciprocal States: Full-year residents of Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, or Wisconsin who earned only wages and salaries from Kentucky may file the simplified Form 740-NP-R to claim a refund of any Kentucky tax withheld, rather than filing a full Form 740-NP.
Source: https://revenue.ky.gov/Forms/740-NP%20Packet%20Instructions%20(2025).pdf and https://revenue.ky.gov/Forms/740-NP-R%20(2025).pdf
What Income Is Taxable in Kentucky
Fully Taxable Income
Kentucky taxes the following categories of income:
- Wages and salaries
- Self-employment income and business income
- Interest and dividend income
- Capital gains (short-term and long-term)
- Rental income from Kentucky and non-Kentucky property (for residents)
- Gambling winnings (including lottery winnings)
- Alimony received (under pre-2019 federal rules, if applicable)
- Unemployment compensation
- Retirement account distributions exceeding the pension exclusion amount (see below)
- Partnership and S-corporation distributive share income
- Hobby income
Note on federal changes: For Tax Year 2025, qualified tips, overtime income, and car loan interest deductions enacted in recent federal tax law are not deductible on Kentucky returns, as Kentucky’s conformity date for IRC purposes is December 31, 2024 (updated by HB 775), and these provisions post-date that conformity date.
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Social Security Benefits
Kentucky does not tax Social Security benefits. Social Security income is fully exempt from Kentucky income tax under KRS 141.019. This exemption applies regardless of income level.
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Pension and Retirement Income
Kentucky provides a pension income exclusion of up to $31,110 per taxpayer for Tax Year 2025. This exclusion applies to:
- Private pensions and annuities
- IRA distributions (traditional and Roth conversions)
- 401(k) and similar qualified plan distributions
- Deferred compensation plan distributions
- Death benefits and disability retirement income from written retirement plans
- Federal, state, and local government pensions (for pre-1998 service, see below)
The exclusion is per taxpayer — on a joint return, each spouse computes their own exclusion independently. The maximum combined exclusion for a married couple filing jointly is $62,220 ($31,110 × 2).
Government Retirees — Additional Exclusion:
Individuals retired from the federal government, the Commonwealth of Kentucky, or a Kentucky local government with service credit earned before January 1, 1998 may qualify for a pension exclusion exceeding $31,110. These retirees must complete Schedule P to determine their exact exclusion percentage.
U.S. Railroad Retirement Board (Tier 2): Supplemental Railroad Retirement Board benefits (Tier 2) are also eligible for the pension exclusion via Schedule P.
Source: https://revenue.ky.gov/Forms/Schedule%20M%20(2025).pdf and https://revenue.ky.gov/Forms/Schedule%20P%20(2025).pdf
Military Retirement Pay
Kentucky fully exempts military retirement pay. Retired military personnel with pension income exceeding $31,110 must complete Schedule P to determine the exempt percentage attributable to pre-1998 service credit. The portion exceeding the standard $31,110 exclusion may be further excluded based on the Schedule P calculation.
Source: https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx
Active Duty Military Pay
Kentucky does not tax active duty military pay. Effective for tax years beginning January 1, 2010, all military pay received by active duty members of the U.S. Armed Forces, Reserve components, and the National Guard is exempt from Kentucky income tax under KRS 141.019(1)(l). This exemption applies regardless of where the servicemember is stationed.
Source: https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx
U.S. Government Interest
Interest income from U.S. government obligations (e.g., U.S. Treasury bonds, savings bonds) is exempt from Kentucky income tax, consistent with federal law.
Source: https://revenue.ky.gov/Forms/Schedule%20M%20(2025).pdf
Standard Deduction and Exemptions
| Standard Deduction (Tax Year 2025) | |
|---|---|
| Kentucky uses a single standard deduction amount applicable to all filing statuses: | |
| Filing Status | Standard Deduction |
| Single | $3,270 |
| Married Filing Jointly | $3,270 |
| Married Filing Separately | $3,270 |
| Head of Household | $3,270 |
The Kentucky standard deduction is adjusted annually for inflation pursuant to KRS 141.081(2)(a). For Tax Year 2025, the amount increased by $110 from the prior year’s $3,160.
Important: For part-year residents, the standard deduction is not prorated based on residency period. Non-itemizing part-year residents enter the full $3,270 on Form 740-NP.
Source: https://revenue.ky.gov/News/pages/kentucky-dor-announces-2025-standard-deduction.aspx
Personal Exemptions
Kentucky does not offer personal exemptions for individual income tax filers. There are no exemptions for the taxpayer, spouse, or dependents beyond the standard deduction.
Itemized Deductions
Kentucky allows itemized deductions for taxpayers who choose to itemize rather than taking the standard deduction. Kentucky itemized deductions generally follow federal rules with certain modifications. Taxpayers who itemize on their federal return may itemize on their Kentucky return, but must use the Kentucky Schedule A.
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Kentucky Income Tax Credits
1. Family Size Tax Credit
This is Kentucky’s most significant individual income tax credit, designed to benefit low- and moderate-income families.
How it works: The credit eliminates or reduces Kentucky income tax for taxpayers whose modified gross income does not exceed 133% of the federal poverty level threshold for their family size.
| 133% of Poverty Threshold Amounts (Tax Year 2025) | |
|---|---|
| Family Size | 133% of Poverty Threshold |
| 1 person | $20,815 (133% × $15,650) |
| 2 persons | $28,130 (133% × $21,150) |
| 3 persons | $35,445 (133% × $26,650) |
| 4 or more persons | $42,760 (133% × $32,150) |
Taxpayers with income between the base threshold and 133% receive a partial credit. The credit is non-refundable — it reduces tax to zero but does not generate a refund.
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
2. Credit for Taxes Paid to Other States
Kentucky residents who pay income tax to another state on income that is also taxable in Kentucky may claim a credit to avoid double taxation.
Requirements:
- Taxpayer must be a Kentucky resident
- Tax must have been actually paid to the other state (not merely assessed)
- Income must be derived from sources outside Kentucky and also taxable in Kentucky
- The credit is limited to the lesser of the tax paid to the other state or the Kentucky tax that would be attributable to that income
Important: This credit is not available for income covered by reciprocal agreements.
Form: Schedule CR (Credit for Taxes Paid to Other States), attached to Form 740
3. Kentucky Small Business Tax Credit
A nonrefundable credit for eligible small businesses (including their owners) for creating new full-time jobs or making eligible equipment purchases.
- Maximum credit: up to 100% of Kentucky income tax imposed, not to exceed $25,000 per year per business
- Total program cap: $3,000,000 annually
- Unused credits carry forward up to 5 years
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
4. Qualified Broadband Investment Tax Credit (New for 2025)
For taxable years beginning January 1, 2025 through December 31, 2028, a nonrefundable, non-transferable credit is available for qualifying investments in broadband infrastructure expansion in Kentucky.
- Application must be submitted to the Department of Revenue by December 31 of the current calendar year
- The Department reviews and approves allowable credit amounts by February 1
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
5. Refundable Pass-Through Entity Tax Credit
Individual owners of pass-through entities that have elected to pay Kentucky income tax at the entity level (under HB 5, effective for tax years beginning January 1, 2022) may claim a refundable credit passed through on Form PTET-CR.
Claimed on: Form 740 or Form 740-NP, line 31(g)
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
6. Skills Training Investment Tax Credit
A credit for employers making qualified investments in approved worker training programs, certified by the Bluegrass State Skills Corporation. This credit passes through to individual owners via Schedule K-1.
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
7. Historic Rehabilitation Credit
A refundable or transferable credit for qualified rehabilitation expenses for certified historic structures meeting the requirements of KRS 171.396 and 171.397.
Source: https://apps.legislature.ky.gov/law/statutes/chapter.aspx?id=37674 (KRS 141.382)
Additional Credits: Kentucky offers additional industry-specific, economic development, and environmental credits through Schedule ITC. See the full Schedule ITC instructions for a complete list: https://revenue.ky.gov/Get-Help/Pages/Forms.aspx
Filing Deadlines
Regular Deadline
April 15, 2026 for Tax Year 2025 returns (calendar year filers)
Returns must be postmarked or submitted electronically no later than April 15, 2026 to avoid penalties and interest.
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Extension Deadline
October 15, 2026 (6-month extension)
Kentucky grants an automatic extension of time to file for taxpayers who:
- File a Kentucky extension request (Form 740EXT) by April 15, 2026, OR
- Attach a copy of a valid federal Form 4868 extension to the Kentucky return when filed
Critical: An extension of time to file is not an extension of time to pay. To avoid late payment penalties, at least 75% of the total tax owed must be paid by April 15, 2026. A minimum late payment penalty of $10 applies if less than 75% is paid by the original due date.
Extension forms:
- Form 740EXT — Kentucky Application for Extension of Time to File (Section II includes payment voucher)
- Federal Form 4868 — A copy may be used in lieu of Form 740EXT
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Estimated Tax Payments
If you have income not subject to withholding (self-employment income, investment income, rental income, etc.), quarterly estimated tax payments are due:
| Estimated Tax Payment Schedule (Tax Year 2025) | |
|---|---|
| Payment | Due Date |
| Q1 (January 1 – March 31, 2025) | April 15, 2025 |
| Q2 (April 1 – May 31, 2025) | June 15, 2025 |
| Q3 (June 1 – August 31, 2025) | September 15, 2025 |
| Q4 (September 1 – December 31, 2025) | January 15, 2026 |
Safe harbor to avoid underpayment penalty: Pay at least 100% of the prior year’s tax liability, or at least 70% of the current year’s tax liability, through withholding and/or estimated payments.
Estimated tax form: Form 740-ES (Kentucky Individual Estimated Income Tax)
Online payment: https://mytaxes.ky.gov
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Special Filing Deadline Extensions
Military Combat Zones: Members of the Armed Forces serving in a combat zone designated by presidential proclamation receive an automatic extension for filing and payment. The deadline is extended until 12 months after completion of combat zone service. Kentucky honors federal combat zone extensions under KRS 131.081(11).
Federal Disaster Relief: Kentucky honors federally declared disaster area extensions. Taxpayers in affected areas should label returns “Kentucky Disaster Relief” in large red letters at the top of the form.
Source: https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx and https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Filing Options for Kentucky Income Tax
Online Filing (E-File)
Electronic filing is available through:
- KY File (Free Fillable Forms): Kentucky’s official free online filing portal, available for taxpayers who wish to complete forms without paid tax software. KY File provides basic calculations and error checking.
https://kyfpf.ky.gov/ (access through revenue.ky.gov) - Federal/State E-File Program: Taxpayers using a professional preparer can file both federal and state returns electronically together.
- Federal/State Online Filing: Self-prepared e-filing from your home computer using approved software.
- Free Electronic Filing: Kentucky participates in free filing programs for eligible taxpayers. Visit: https://revenue.ky.gov/Individual/Pages/Free-Electronic-Filing.aspx
- IRS Free File: Available to eligible taxpayers through the IRS: https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
Paper Filing
Paper forms are available for download and mail filing:
- Full-Year Resident Form: Form 740 — Kentucky Individual Income Tax Return
Download: https://revenue.ky.gov/Get-Help/Pages/Forms.aspx - Non-Resident/Part-Year Form: Form 740-NP — Kentucky Individual Income Tax Return (Nonresident or Part-Year Resident)
- Reciprocal State Non-Resident: Form 740-NP-R — Kentucky Income Tax Return, Nonresident — Reciprocal State
Make checks payable to: Kentucky State Treasurer
Note on check: Write “KY Income Tax–2025” and your Social Security number on the face of the check.
Payment by Check (E-filed returns)
If you e-filed but wish to pay by check, use Form 740-V (Kentucky Individual Income Tax Voucher). Do not enclose a check with your electronic filing; mail Form 740-V with payment separately.
Source: https://revenue.ky.gov/Individual/Pages/Free-Electronic-Filing.aspx and https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Free Tax Assistance
VITA (Volunteer Income Tax Assistance):
Free tax preparation for eligible taxpayers (generally those earning $67,000 or less). Find locations: https://irs.treasury.gov/freetaxprep/
TCE (Tax Counseling for the Elderly):
Free tax assistance for people age 60 and older. Find locations: https://irs.treasury.gov/freetaxprep/
AARP Tax-Aide:
Free tax preparation assistance, especially for those 50 and older.
Find locations: https://taxaide.aarp.org/
Local Income Taxes in Kentucky
Kentucky allows local governments (cities and counties) to levy local occupational taxes on wages, salaries, and net profits from self-employment. These taxes are separate from Kentucky state income tax and are administered locally — the Kentucky Department of Revenue does not administer local occupational taxes.
Overview of Kentucky Local Occupational Taxes
Local occupational taxes in Kentucky are levied on wages earned within the jurisdiction (by residents and non-residents) and on net business profits. Key characteristics:
- Employers are generally required to withhold local occupational tax and remit it to the local government
- Rates and structures vary by jurisdiction
- Many Kentucky counties and cities have local taxes; some do not
- Local taxes are not reported on your Kentucky state income tax return (Form 740 or 740-NP)
Major Local Tax Jurisdictions
Louisville/Jefferson County:
The Louisville Metro Government levies an occupational license tax. Jefferson County also historically levied a separate county tax. Rates and current structure information:
https://louisvilleky.gov/government/revenue-commission
Lexington-Fayette Urban County:
Lexington-Fayette Urban County Government levies a local occupational license tax on wages and net profits.
https://www.lexingtonky.gov/occupational-license
Frankfort (Franklin County):
City of Frankfort and Franklin County both levy local occupational taxes on wages earned within their jurisdictions.
Additional Jurisdictions: Numerous Kentucky cities and counties impose local occupational taxes. For a comprehensive directory of local officials administering occupational taxes, contact the Kentucky Occupational License Association (KOLA):
https://www.kola.us/
Important Notes on Local Taxes
- Local taxes are not reported on Kentucky state income tax returns
- If you work in multiple Kentucky jurisdictions, you may owe local taxes to multiple localities
- Remote workers working from home may owe the local tax of their home jurisdiction even if their employer is located in a different city or county
- Local occupational taxes are generally based on work performed within the taxing jurisdiction
Source: https://revenue.ky.gov/Business/Pages/default.aspx (Kentucky DOR does not administer local occupational taxes; contact local jurisdiction directly)
Special Considerations for Kentucky Income Tax
Remote Workers and Multi-State Taxation
Living in Kentucky, Working for an Out-of-State Employer
As a Kentucky resident, you owe Kentucky income tax on all income, regardless of where your employer is located. Kentucky taxes residents on worldwide income.
What this means:
- Employer location does NOT determine Kentucky tax obligation
- A Kentucky resident working remotely for a New York, California, or any other out-of-state company owes Kentucky income tax on that income
- Your employer may not withhold Kentucky tax — it is your responsibility to pay Kentucky tax through withholding or estimated quarterly payments
Example: A Kentucky resident employed remotely by a Texas-based company, working entirely from their home in Louisville, owes Kentucky income tax at 4% on their full salary. No Texas state income tax applies (Texas has no income tax), so there is no double taxation. The Kentucky resident must ensure Kentucky tax is withheld or make estimated payments.
Source: https://apps.legislature.ky.gov/law/KAR/titles/103/017/010/ (103 KAR 17:010 — All Kentucky residents subject to Kentucky income tax)
Working in Kentucky, Living in Another State
Non-residents who perform work physically in Kentucky owe Kentucky income tax on income earned from Kentucky sources.
Physical Presence Rule: Income is sourced to Kentucky based on where work is physically performed. A non-resident who works in Kentucky on certain days owes Kentucky tax on the portion of wages attributable to those Kentucky workdays.
Exception — Reciprocal States: Residents of Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin who earn only wages and salaries from Kentucky are exempt from Kentucky income tax on those wages under reciprocal agreements. They are taxed only by their home state.
Source: https://revenue.ky.gov/Forms/740-NP%20Packet%20Instructions%20(2025).pdf
⚠️ Interstate Tax Risk Indicator
Remote workers with Kentucky connections commonly encounter complications with the following states:
States requiring particular attention:
- New York — Applies the “convenience of the employer” rule. A non-New York resident working remotely for a New York employer may owe New York tax on income worked from home if the remote work arrangement is for the employee’s convenience rather than employer necessity
- California — Aggressive residency audits; a non-California resident who works in California for extended periods may trigger California residency
- Pennsylvania — 200+ local income tax jurisdictions; non-residents working for Pennsylvania employers may owe Pennsylvania state and local tax on Pennsylvania workdays
- Ohio — Reciprocal with Kentucky (wages/salaries only); Kentucky residents commuting to Ohio are taxed by Kentucky only. However, S-corporation shareholder-employees who are 20%+ equity investors are excluded from reciprocity
Source: Kentucky DOR Form K-4 instructions at https://revenue.ky.gov/Documents/42A804%20(K-4)%20(2025).pdf and IRS Publication 505
“Convenience of the Employer” Rule
Kentucky does NOT apply a “convenience of the employer” rule. Kentucky taxes non-residents only on income from work physically performed within Kentucky. A non-resident working remotely from their home state for a Kentucky-based employer is not taxed by Kentucky on that remote work income.
What this means for non-residents: If your employer is located in Kentucky but you physically work from home in another state, Kentucky does not tax your wages for the days you work outside Kentucky.
What this means for Kentucky residents: As a Kentucky resident, you owe Kentucky tax on all income regardless of where work is performed. The convenience rule does not apply in your favor — your remote work income is fully taxable in Kentucky.
Source: https://revenue.ky.gov/Forms/740-NP%20Packet%20Instructions%20(2025).pdf and 103 KAR 17:010
| Reciprocal Agreements | |
|---|---|
| Kentucky has reciprocal agreements with the following states for wages and salaries: | |
| Reciprocal State | Type of Income Exempt |
| Illinois | Wages and salaries |
| Indiana | Wages and salaries |
| Michigan | Wages and salaries |
| Ohio | Wages and salaries (see Ohio note below) |
| Virginia | Wages and salaries (must commute daily) |
| West Virginia | Wages and salaries |
| Wisconsin | Wages and salaries |
What reciprocity means:
- Residents of the above states who earn wages/salaries in Kentucky pay income tax only to their state of residence — not to Kentucky
- Kentucky residents who earn wages/salaries in the above states pay income tax only to Kentucky — not to the reciprocal state
How to use reciprocity:
- Non-resident working in Kentucky: File Form K-4 (Kentucky Withholding Certificate) with your Kentucky employer claiming the reciprocal state exemption, so Kentucky tax is not withheld. At year end, if Kentucky tax was withheld, file Form 740-NP-R to claim a refund.
- Kentucky resident working in a reciprocal state: File the equivalent certificate with your out-of-state employer to exempt your wages from that state’s withholding. File only a Kentucky Form 740 for your wages.
Important Limitations:
- Reciprocity applies only to wages and salaries — gambling income and S-corporation distributive share income (Schedule K-1) from Kentucky sources are not exempt under reciprocal agreements and are fully taxable
- Reciprocity does not apply to persons who live in Kentucky for more than 183 days during the tax year, even if they are residents of a reciprocal state
- Ohio special rule: The Ohio reciprocal agreement excludes wages paid by an S corporation to a shareholder-employee who is a “twenty (20) percent or greater” direct or indirect equity investor in the S corporation. Those wages are fully taxable in Kentucky for Ohio residents
Form: Form K-4 (for employees working in Kentucky claiming reciprocal exemption); Form 740-NP-R (for full-year reciprocal state residents filing for refund)
Source: https://revenue.ky.gov/DOR%20Training%20Materials/103%20KAR%2017.140.%20Individual%20income%20tax%20-%20reciprocity%20-%20nonresidents.pdf and https://revenue.ky.gov/Forms/740-NP-R%20(2025).pdf
Multi-State Tax Filing
When earning income in multiple states, Kentucky residents follow this general process:
- File a Kentucky Form 740 (resident return) reporting all income from all sources
- File non-resident or part-year resident returns in other states where income was earned
- Claim the Credit for Taxes Paid to Other States on the Kentucky return for income taxes actually paid to other states on income also taxable in Kentucky
Credit limitation: The credit is limited to the lesser of (a) the tax paid to the other state, or (b) the Kentucky tax attributable to that out-of-state income. The credit cannot exceed what Kentucky would have taxed at the 4% rate.
Foreign taxes: The credit is only available for taxes paid to other U.S. states. Taxes paid to foreign countries do not qualify.
Form: Schedule CR (Kentucky Credit for Taxes Paid to Other States), attached to Form 740
Tax Residency vs. Domicile in Kentucky
Understanding the difference between residency and domicile is critical for determining Kentucky tax obligations.
Domicile Defined
Domicile is your permanent legal home — the place where you intend to remain indefinitely and to which you intend to return after any temporary absence.
Key characteristics under Kentucky law:
- You can have only ONE domicile at a time
- Domicile continues until you establish a new domicile elsewhere with both actual removal and intent to remain
- Temporary absences (for work, military service, education) do not change domicile
- If you move out of Kentucky and return within six months, it is presumed the removal was not permanent and you remain a Kentucky resident or part-year resident for that period
Factors establishing Kentucky domicile:
- Primary residence location
- Voter registration in Kentucky
- Kentucky driver’s license
- Kentucky vehicle registration
- Where your family (spouse, children) resides
- Location of bank accounts and financial institutions
- Kentucky homestead exemption filing
- Stated intent in legal documents (will, estate documents)
- Membership in Kentucky organizations
Source: https://apps.legislature.ky.gov/law/KAR/titles/103/017/010/ (103 KAR 17:010)
Residency Defined
Kentucky Statutory Residency: Under KRS 141.010(32), an individual is a Kentucky resident if they are either:
- Domiciled within Kentucky, OR
- Not domiciled in Kentucky, but maintains a place of abode in Kentucky AND spends more than 183 days in Kentucky during the taxable year
This means a person can be treated as a Kentucky resident for tax purposes even without intending Kentucky to be their permanent home — if they have a Kentucky abode and spend sufficient time there.
183-day threshold: Any part of a day spent in Kentucky generally counts as a full day for this calculation.
Source: https://revenue.ky.gov/Documents/42A804%20(K-4)%20(2025).pdf and KRS 141.010(32)
| Critical Differences | ||
|---|---|---|
| Factor | Domicile | Tax Residency |
| Number allowed | One at a time | Can be resident of multiple states simultaneously |
| Based on | Permanent intent + connections | Physical presence (183+ days) + place of abode |
| Changes when | New permanent home established with intent | Fall below/above 183-day threshold |
| Tax impact | Taxed on worldwide income as domiciliary | Taxed on worldwide income as statutory resident |
Common Conflict Scenarios
Scenario 1: Snowbirds
A Kentuckian who winters in Florida for 5 months and spends the remainder of the year in Kentucky. Kentucky domicile is maintained (under 183 days in Florida). Full Kentucky resident filing as Kentucky domiciliary.
Scenario 2: Extended Temporary Work Assignment
A Kentucky-domiciled individual accepts a 10-month work assignment in Ohio, rents an apartment in Cincinnati, and returns to their Kentucky home on weekends. The individual likely remains a Kentucky resident (domicile unchanged) and may also qualify as an Ohio statutory resident if Ohio’s residency thresholds are met. Kentucky credit for Ohio taxes paid would apply.
Scenario 3: Military Stationed in Kentucky (Non-Kentucky Resident)
A servicemember domiciled in Tennessee stationed at Fort Campbell, Kentucky. Under the Servicemembers Civil Relief Act (SCRA), Kentucky does not become their state of legal residence solely due to military orders. They continue filing in Tennessee. See Military Personnel section (Part 4).
Source: https://apps.legislature.ky.gov/law/KAR/titles/103/017/010/
Domicile Change Requirements
To successfully change domicile from Kentucky to another state, the taxpayer must demonstrate:
- Actual removal — physically departed Kentucky and established residence elsewhere
- Intent to remain — genuine, documented intention to make the new location the permanent home
- Abandonment of Kentucky domicile — severed Kentucky connections and established new ones elsewhere
A domicile once established continues until a new domicile is acquired. Simply moving does not automatically change domicile if the individual returns within six months, as this creates a presumption that the removal was not intended to be permanent.
Source: https://apps.legislature.ky.gov/law/KAR/titles/103/017/010/
Burden of Proof
In Kentucky residency disputes, the burden typically falls on the taxpayer to demonstrate non-residency or that domicile was changed.
Common Kentucky audit triggers:
- Maintaining a Kentucky driver’s license while claiming residency elsewhere
- Owning Kentucky real estate while filing as a non-resident
- Spouse and/or children remaining in Kentucky while taxpayer claims residency change
- Day count near the 183-day statutory threshold
- High-income individuals claiming non-residency
Source: https://revenue.ky.gov/Forms/740-NP%20Packet%20Instructions%20(2025).pdf and 103 KAR 17:010
Documentation Commonly Requested in Residency Audits
State tax authorities may audit residency determinations. The following documentation types are commonly requested in Kentucky residency audits:
| Primary Residency Evidence | |
|---|---|
| Document Type | What It Shows |
| Kentucky Driver's License | State of legal residence |
| Voter Registration | Where voting rights are exercised |
| Vehicle Registration | Where vehicles are domiciled |
| Professional Licenses | State of professional registration |
| Homestead Exemption | Primary residence designation |
| Physical Presence Documentation | |
|---|---|
| Document Type | What It Shows |
| Day-Count Logs | Physical location by day |
| Travel Records (flights, hotels) | Interstate travel patterns |
| Credit/Debit Card Statements | Geographic spending patterns |
| Cell Phone Records | Location data from carrier |
| E-ZPass / Toll Records | State line crossings |
| Social Media Geolocation | Presence indicators |
| Property and Financial Ties | |
|---|---|
| Document Type | What It Shows |
| Property Ownership Records | Real estate holdings |
| Utility Bills | Physical occupancy patterns |
| Lease or Rental Agreement | Residence location |
| Bank Statements | Financial institution location |
| Social and Family Connections | |
|---|---|
| Document Type | What It Shows |
| Family Location | Where spouse/children reside |
| Medical Records | Where regular care is received |
| Religious Affiliation | Place of worship attendance |
| Club/Organization Memberships | Social and recreational ties |
| School Enrollment Records | Where children attend school |
| Employment Documentation | |
|---|---|
| Document Type | What It Shows |
| W-2 Forms | Employer location, wages |
| Employment Contract | Work location requirements |
| Remote Work Agreement | Authorization to work remotely |
| Intent Documentation | |
|---|---|
| Document Type | What It Shows |
| Will / Estate Documents | Stated domicile for estate purposes |
| Prior Tax Returns | Prior year residency claims |
| Insurance Policies | Address on file with insurers |
Note: This section provides factual information about documentation types commonly requested. It does not constitute legal or tax advice.
Source: https://apps.legislature.ky.gov/law/KAR/titles/103/017/010/ and https://revenue.ky.gov/Forms/740-NP%20Packet%20Instructions%20(2025).pdf
Military Personnel
Servicemembers Civil Relief Act (SCRA)
Active duty military members stationed in Kentucky solely due to military orders do not become Kentucky residents solely because of those orders. Under the SCRA (50 U.S.C. 4001) and 103 KAR 17:130:
- Servicemembers pay income tax to their state of legal domicile (usually the state where they resided before entering service)
- Military pay earned in Kentucky is not subject to Kentucky income tax for non-Kentucky-domiciled servicemembers
- If a servicemember’s state of legal residence with the military is Kentucky, they are a Kentucky resident for income tax purposes
Fort Campbell Special Rule: Under Public Law 105-261, pay and compensation earned at Fort Campbell, Kentucky is exempt from Kentucky income tax for non-residents of Kentucky. A servicemember must certify non-residency on Form K-4 (check Box 2) to claim this exemption.
Source: https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx and https://apps.legislature.ky.gov/law/kar/titles/103/017/130/
Military Spouses Residency Relief Act (MSRRA)
The spouse of an active duty servicemember may maintain their home state residency and is not taxed by Kentucky on income earned in Kentucky if all three conditions are met:
- The spouse is in Kentucky solely to be with the servicemember
- The servicemember is in Kentucky under military orders
- The spouse maintains domicile in another state (the same state as the servicemember)
A military spouse qualifying under the MSRRA should file Form K-4 with their Kentucky employer claiming the military spouse exemption (Box 3) to prevent Kentucky withholding.
Source: https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx and https://revenue.ky.gov/Documents/42A804%20(K-4)%20(2025).pdf
Active Duty Military Pay
Kentucky fully exempts all active duty military pay from Kentucky income tax. This exemption applies to:
- Active duty members of all branches of the U.S. Armed Forces (Army, Navy, Air Force, Marine Corps, Coast Guard)
- Members of Reserve components of the U.S. Armed Forces
- Members of the National Guard
The exemption is effective for all tax years beginning January 1, 2010, under KRS 141.019(1)(l). Kentucky income tax is not required to be withheld from active duty military pay. If Kentucky tax was incorrectly withheld, the Department of Revenue will refund the amount withheld.
How to claim: Subtract active duty military pay on Schedule M, Line (Federal Adjustments to Income). Part-year residents subtract this under Adjustments to Income on Form 740-NP, labeling it “active duty military pay.”
Source: https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx
Military Retirement Pay
Kentucky provides favorable treatment for military retirement pay:
- Standard pension exclusion: Military retirees are entitled to the standard pension income exclusion of up to $31,110 per taxpayer (Tax Year 2025), applicable to all military retirement pay
- Additional exclusion for pre-1998 service: Retired military with service credit earned before January 1, 1998, may qualify for an exclusion exceeding $31,110 by completing Schedule P (Kentucky Pension Income Exclusion). Schedule P calculates the exempt percentage based on the proportion of pre-1998 service
Result: Many military retirees with significant pre-1998 service pay little or no Kentucky income tax on their retirement benefits.
Source: https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx and https://revenue.ky.gov/Forms/Schedule%20P%20(2025).pdf
Combat Zone Extensions
Kentucky honors federal combat zone extensions for filing and payment deadlines under KRS 131.081(11). Servicemembers serving in a presidential-proclaimed combat zone have until 12 months after completion of service to file returns and pay taxes that would otherwise be due during the service period.
Source: https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx
What Military Members with Kentucky Domicile DO Owe Tax On
Kentucky servicemembers (those domiciled in Kentucky) owe Kentucky income tax on non-exempt income:
- Non-military income earned while a Kentucky resident (investment income, rental income, part-time civilian employment, business income)
- Active duty military pay itself remains exempt
- Military retirement pay is subject to the pension exclusion rules above
Servicemembers who are Kentucky residents and whose only income is active duty military pay are not required to file a Kentucky income tax return — unless Kentucky income tax was incorrectly withheld, in which case a return is needed to obtain a refund.
Source: https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx
Retirees
Social Security Benefits
Kentucky does not tax Social Security benefits. Social Security income is fully exempt under KRS 141.019 regardless of the retiree’s total income level. There are no income thresholds above which Social Security becomes partially taxable in Kentucky, unlike the federal system.
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Pension Income
Standard Pension Income Exclusion (Tax Year 2025):
Kentucky allows each taxpayer to exclude up to $31,110 of pension and retirement income from Kentucky taxable income. This exclusion applies to:
- Private pensions from former employers
- Annuities (including life insurance annuities)
- Traditional IRA distributions
- 401(k), 403(b), and 457 plan distributions
- Roth IRA conversions (the amount included in federal income)
- Deferred compensation plan distributions
- Death benefits paid under a written retirement plan
- Disability retirement benefits paid under a written retirement plan
- SEP, SIMPLE, and Keogh plan distributions
Key rule: The exclusion applies to each taxpayer independently. A married couple filing jointly each computes their own $31,110 exclusion. The maximum combined exclusion is $62,220.
Government and Railroad Retirement:
Retirees from the federal government, the Commonwealth of Kentucky, or a Kentucky local government with service prior to January 1, 1998, may exclude more than $31,110 using Schedule P. The Schedule P calculation determines the exempt percentage based on the ratio of pre-1998 service credit to total service credit.
Supplemental U.S. Railroad Retirement Board (RRB) benefits (Tier 2) also qualify for the expanded Schedule P exclusion.
Source: https://revenue.ky.gov/Forms/Schedule%20M%20(2025).pdf and https://revenue.ky.gov/Forms/Schedule%20P%20(2025).pdf
Retirement Account Distributions
401(k) and Traditional IRA:
Distributions are taxable in Kentucky as ordinary income, subject to the pension income exclusion of up to $31,110 per taxpayer. Amounts exceeding the exclusion are taxed at the 4% flat rate.
Roth IRA:
Qualified Roth IRA distributions (from accounts held for at least 5 years and meeting age/disability/death requirements) that are tax-free at the federal level are also excluded from Kentucky income. Non-qualified Roth conversions included in federal income are treated as pension income eligible for the $31,110 exclusion.
FERS, CSRS, and Kentucky Retirement System:
Federal civilian retirees (FERS, CSRS) and Kentucky state government retirees with pre-1998 service may use Schedule P to calculate exclusions exceeding $31,110.
Source: https://revenue.ky.gov/Forms/Schedule%20M%20(2025).pdf
Capital Gains
Kentucky taxes capital gains (both short-term and long-term) as ordinary income at the flat 4% rate. There is no preferential capital gains rate in Kentucky. Long-term capital gains taxed at lower federal rates are taxed at 4% on the Kentucky return.
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Students
College students attending school in Kentucky do not automatically become Kentucky residents for tax purposes.
You remain a non-resident if:
- You maintain legal residence (domicile) in another state
- Your presence in Kentucky is temporary for educational purposes
- You intend to return to your home state after graduation
You owe Kentucky income tax only on Kentucky-source income:
- Wages earned from a job in Kentucky (part-time work, internships, work-study)
- Self-employment income from Kentucky clients or customers
- Scholarships and fellowships used for non-qualified expenses (room and board) if taxable at the federal level
Students do NOT owe Kentucky tax on:
- Scholarships and fellowships used for qualified tuition and fees (these are excluded from income)
- Loans
- Gifts from parents or family
Establishing Kentucky residency as a student:
Students CAN become Kentucky residents if they take affirmative steps to establish Kentucky domicile:
- Register to vote in Kentucky
- Obtain a Kentucky driver’s license
- Purchase property in Kentucky
- Maintain continuous presence beyond the educational period with intent to remain
Simply attending college in Kentucky and living in a dorm or rental apartment for the school year does not establish Kentucky domicile.
Filing requirements for out-of-state students: File Form 740-NP (Non-Resident or Part-Year Resident) if you had Kentucky-source income exceeding the filing threshold. Attach Schedule KW-2 showing Kentucky wages.
Source: https://revenue.ky.gov/Forms/740-NP%20Packet%20Instructions%20(2025).pdf and https://apps.legislature.ky.gov/law/KAR/titles/103/017/010/
Part-Year Residents
If you moved to or from Kentucky during 2025, Kentucky law requires filing as a part-year resident on Form 740-NP.
Income Allocation
Moving TO Kentucky:
- Report all income earned from your Kentucky residency start date through December 31, 2025 as Kentucky income
- Income earned before moving to Kentucky (while resident of another state) is generally not taxable in Kentucky
- You must also file a non-resident or part-year resident return in your former state for income earned before leaving
Moving FROM Kentucky:
- Report all income earned from January 1, 2025 through your Kentucky residency end date as Kentucky income
- Income earned after establishing domicile in your new state is generally not taxable in Kentucky
- You must file a non-resident or part-year resident return in your new state for income earned there
Standard Deduction for Part-Year Residents
Part-year residents who do not itemize enter the full $3,270 standard deduction on Form 740-NP — the deduction is not prorated by number of days as a Kentucky resident.
Moving Out of Kentucky — Retirement Income
Part-year residents who moved out of Kentucky must include any differences in pension income under the “3-year recovery rule” and any IRA basis differences attributable to the period of Kentucky residency. See Schedule P and Schedule M instructions for details.
Form required: Form 740-NP — Kentucky Individual Income Tax Return (Nonresident or Part-Year Resident)
Download: https://revenue.ky.gov/Get-Help/Pages/Forms.aspx
Source: https://revenue.ky.gov/Forms/740-NP%20Packet%20Instructions%20(2025).pdf
Common Tax Filing Situations
Situation: “My employer is in another state, so I don’t owe Kentucky tax.”
Kentucky law: Kentucky residents owe tax on all income regardless of employer location. A Kentucky resident whose employer is located in Ohio, Indiana, or any other state still owes Kentucky income tax on their wages. Employer location does not determine tax obligation for a Kentucky resident.
Source: https://apps.legislature.ky.gov/law/KAR/titles/103/017/010/
Situation: “I work remotely full-time, so I don’t owe tax anywhere.”
Tax law principle: All income is taxable in at least one jurisdiction. Remote work does not exempt income from taxation. A Kentucky resident working remotely for any employer (regardless of state) owes Kentucky income tax at 4% on that income.
Source: KRS 141.020 — https://apps.legislature.ky.gov/law/statutes/chapter.aspx?id=37674
Situation: “I’m part-year resident, so I owe half the tax.”
Kentucky law: Part-year residents owe tax only on income earned during their period of Kentucky residency, not a simple 50% or proportional reduction. Actual income allocation by residency dates is required on Form 740-NP.
Source: https://revenue.ky.gov/Forms/740-NP%20Packet%20Instructions%20(2025).pdf
Situation: “I live in Indiana but work in Kentucky — do I file in both states?”
Kentucky answer: As an Indiana resident covered by Kentucky’s reciprocal agreement, you owe Kentucky income tax only to Indiana on your Kentucky wages and salaries. File Form K-4 with your Kentucky employer claiming the reciprocal exemption. If Kentucky tax was withheld, file Form 740-NP-R to claim a refund.
Exception: If you also have Kentucky-source income other than wages (gambling, K-1 income), you must file Form 740-NP for that income.
Penalties and Interest
Late Filing Penalty
Kentucky imposes a penalty for failure to file (or failure to furnish information) of 5% of the estimated tax due assessed by the Department of Revenue for each 30 days or fraction thereof that the return is not filed.
- Maximum penalty: 50% of the tax assessed
- Minimum penalty: $100
Source: https://revenue.ky.gov/Collections/Pages/Penalties-Interest-and-Fees.aspx
Late Payment Penalty
A late payment penalty applies if the amount of tax paid by the original due date (April 15, 2026) is less than 75% of the total tax due.
- Minimum penalty: $10
- Interest also accrues on any unpaid amount from the original due date
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Failure to Timely Pay (DOR-Assessed Tax)
If the Kentucky Department of Revenue assesses additional tax and it is not paid within 60 days of the assessment due date: 2% of the unpaid tax per 30 days, maximum no stated cap per this provision.
Source: https://revenue.ky.gov/Collections/Pages/Penalties-Interest-and-Fees.aspx
Interest on Unpaid Tax
Interest accrues on unpaid tax from the original due date (April 15) at the “tax interest rate” set annually by the Commissioner of Revenue under KRS 131.183. The rate is computed at 2% above the applicable federal rate. Interest cannot be waived — Kentucky’s tax laws have no provision for interest waiver.
Current rate: Check the current rate at https://revenue.ky.gov/Collections/Pages/Penalties-Interest-and-Fees.aspx
Source: https://revenue.ky.gov/Collections/Pages/Penalties-Interest-and-Fees.aspx (KRS 131.183)
Underpayment of Estimated Tax Penalty
A penalty applies if estimated tax payments are insufficient:
- Safe harbor: No penalty if estimated payments equal at least 100% of the prior year’s Kentucky tax liability, paid in substantially equal installments
- Alternatively: No penalty if at least 70% of the current year’s tax was paid through withholding and estimated payments
- Penalty applies to each underpaid installment from its due date until the earlier of the return due date or payment date
Form: Form 2210-K (Underpayment of Estimated Tax)
Source: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Penalty Waiver
The Department of Revenue may waive all or part of penalties (but not interest) if the taxpayer demonstrates reasonable cause — that the liability resulted from circumstances beyond the taxpayer’s control, that reasonable measures were taken to timely pay, or that strict enforcement would cause undue financial hardship.
Source: https://revenue.ky.gov/Collections/Pages/Penalties-Interest-and-Fees.aspx
Forms and Publications
Primary Tax Return Forms
Full-Year Resident Return:
- Form 740 — Kentucky Individual Income Tax Return
- Instructions: https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
- Download: https://revenue.ky.gov/Get-Help/Pages/Forms.aspx
Non-Resident/Part-Year Return:
- Form 740-NP — Kentucky Individual Income Tax Return (Nonresident or Part-Year Resident)
- Instructions: https://revenue.ky.gov/Forms/740-NP%20Packet%20Instructions%20(2025).pdf
- Download: https://revenue.ky.gov/Get-Help/Pages/Forms.aspx
Reciprocal State Non-Resident Refund:
- Form 740-NP-R — Kentucky Income Tax Return, Nonresident — Reciprocal State
- Instructions included with form: https://revenue.ky.gov/Forms/740-NP-R%20(2025).pdf
Common Schedules and Attachments
Schedule M (Federal Adjusted Gross Income Modifications) is used to apply Kentucky-specific additions and subtractions to federal AGI, including the pension income exclusion, active duty military pay exclusion, and other items. Schedule P (Kentucky Pension Income Exclusion) is required for government and military retirees with service credit earned before January 1, 1998, to calculate an exclusion exceeding $31,110. Schedule CR (Credit for Taxes Paid to Other States) is used to claim the credit against Kentucky tax for income taxes actually paid to another state. Schedule ITC is the comprehensive individual tax credits schedule covering all available Kentucky credits. Schedule A is used by taxpayers who choose to itemize deductions rather than take the standard deduction. Schedule KW-2 summarizes Kentucky withholding from all sources. Schedule KNOL handles Kentucky net operating loss deduction claims. Form 2210-K calculates any underpayment of estimated tax penalty. Form 4972-K applies to taxpayers using the special 10-year averaging method for lump-sum distributions.
All forms: https://revenue.ky.gov/Get-Help/Pages/Forms.aspx
Withholding and Estimated Tax Forms
Form K-4 (Kentucky Withholding Certificate) is completed by employees and submitted to their employer to adjust Kentucky withholding — including to claim reciprocal state exemptions or military spouse exemptions. Form 740-ES is used for quarterly estimated income tax payments by self-employed individuals and others with income not subject to withholding. Form 740-V (Kentucky Individual Income Tax Voucher) is used to submit a check payment separately when the return itself was filed electronically. Form 740EXT (Application for Extension of Time to File) is used to request an extension and, importantly, to submit any payment due with the extension request.
Where to Submit Paper Returns
Refund returns and returns with no tax due should be mailed to: Kentucky Department of Revenue, Frankfort, KY 40618-0006. Returns with a payment enclosed should be mailed to: Kentucky Department of Revenue, Frankfort, KY 40619-0008.
Make checks payable to: Kentucky State Treasurer
Write “KY Income Tax–2025” and your Social Security number on the check.
Source: https://revenue.ky.gov/Get-Help/Pages/Forms.aspx and https://revenue.ky.gov/Forms/740%20Packet%20Instructions%20(2025).pdf
Information Verification Log
Where to Check for Updates
Current Tax Rate Information:
https://revenue.ky.gov/Individual/Individual-Income-Tax/Pages/default.aspx — Updated when rate changes occur (annually or when legislation is enacted)
Standard Deduction Announcements:
https://revenue.ky.gov/News/Pages/default.aspx — Announced annually, typically in August
Tax Forms Library:
https://revenue.ky.gov/Get-Help/Pages/Forms.aspx — 2025 forms typically available starting January 2026
Legislative Changes:
- Kentucky General Assembly: https://apps.legislature.ky.gov/
- Legislative Research Commission: https://legislature.ky.gov/
Administrative Guidance (Rulings, TAMs, GILs):
https://revenue.ky.gov/Pages/Administrative-Writings.aspx
DOR Email Updates:
Subscribe to Revenue Taxpayer Updates directly at: https://revenue.ky.gov/Individual/Individual-Income-Tax/Pages/default.aspx (sign-up link at bottom of page)
Note: This page will be reviewed and updated in January 2027 for Tax Year 2026. For real-time updates, always consult the official Kentucky Department of Revenue website at https://revenue.ky.gov/.
Official Kentucky Income Tax Resources
All information on these pages is compiled exclusively from official government sources.
Kentucky Department of Revenue
- Main Website: https://revenue.ky.gov/
- Individual Income Tax: https://revenue.ky.gov/Individual/Individual-Income-Tax/Pages/default.aspx
- Tax Forms: https://revenue.ky.gov/Get-Help/Pages/Forms.aspx
- Online Filing Portal (KY File): https://kyfpf.ky.gov/
- Online Payment Portal (MyTaxes): https://mytaxes.ky.gov/
- Where’s My Refund?: https://refund.ky.gov/
- Military Exemptions: https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx
- Free Electronic Filing: https://revenue.ky.gov/Individual/Pages/Free-Electronic-Filing.aspx
- Free Tax Preparation Locations: https://revenue.ky.gov/Individual/Pages/Free-Tax-Return-Preparation.aspx
- Tax Credits: https://revenue.ky.gov/Business/Pages/Tax-Credits.aspx
- Penalties and Interest: https://revenue.ky.gov/Collections/Pages/Penalties-Interest-and-Fees.aspx
- DOR News and Announcements: https://revenue.ky.gov/News/Pages/default.aspx
- Administrative Writings (Rulings, TAMs): https://revenue.ky.gov/Pages/Administrative-Writings.aspx
- Tax Answers (FAQ System): https://taxanswers.ky.gov/
Kentucky Tax Code and Regulations
- KRS Chapter 141 (Individual Income Tax): https://apps.legislature.ky.gov/law/statutes/chapter.aspx?id=37674
- Title 103 KAR — Department of Revenue Regulations: https://apps.legislature.ky.gov/law/kar/titles/103/
- Kentucky Legislature (Bill Tracking): https://apps.legislature.ky.gov/
Contact Information
Phone (Individual Income Tax): (502) 564-4581
Hours: Monday–Friday, 8:00 a.m. – 5:00 p.m. Eastern Time
Address: Kentucky Department of Revenue, 501 High Street, Frankfort, KY 40601
Service Centers: https://revenue.ky.gov/Get-Help/Pages/Service-Centers.aspx
Tax Area Contact Directory: https://revenue.ky.gov/Get-Help/Pages/Tax-Area-Contact-Information.aspx
Taxpayer Ombudsman (Taxpayer Advocate)
Kentucky provides a Taxpayer Ombudsman to assist taxpayers with complex disputes and procedural issues.
Taxpayer Ombudsman Phone: (502) 564-7822
Hours: Monday–Friday, 8:00 a.m. – 5:00 p.m. Eastern Time
More information: https://revenue.ky.gov/Get-Help/Pages/Taxpayer-Ombudsman.aspx
Free Tax Assistance Programs
VITA / TCE / AARP Tax-Aide: Find local free tax preparation sites:
- https://irs.treasury.gov/freetaxprep/ (VITA/TCE locator)
- https://taxaide.aarp.org/ (AARP Tax-Aide)
Tax Glossary
Adjusted Gross Income (AGI):
Total income minus specific deductions allowed under the Internal Revenue Code (e.g., IRA contributions, student loan interest). Kentucky starts with federal AGI and then applies Kentucky-specific modifications on Schedule M.
Kentucky Adjusted Gross Income (KAGI):
Federal AGI after Kentucky modifications (Schedule M subtractions and additions). This is the starting point for computing Kentucky taxable income.
Kentucky Taxable Income:
Kentucky Adjusted Gross Income minus the standard deduction ($3,270) or itemized deductions. The 4% rate is applied to this amount.
Resident:
An individual domiciled in Kentucky, OR an individual not domiciled in Kentucky who maintains a place of abode in Kentucky and spends more than 183 days in Kentucky during the tax year (KRS 141.010(32)).
Non-Resident:
An individual who does not meet Kentucky’s residency requirements but earns income from Kentucky sources.
Part-Year Resident:
An individual who moved into or out of Kentucky during the tax year.
Domicile:
Your permanent legal home — the place you intend to return to indefinitely after any temporary absence. You can have only one domicile at a time.
Pension Income Exclusion:
Kentucky’s exclusion of up to $31,110 per taxpayer (Tax Year 2025) of pension and retirement income from Kentucky taxable income.
Reciprocity:
An agreement between Kentucky and seven other states (IL, IN, MI, OH, VA, WV, WI) whereby residents of those states who earn wages in Kentucky pay tax only to their home state, and vice versa.
Tax Credit:
A dollar-for-dollar reduction in tax owed. For example, a $500 Kentucky tax credit reduces Kentucky tax due by $500.
Tax Deduction:
A reduction in taxable income. At Kentucky’s 4% rate, a $1,000 deduction saves $40 in Kentucky tax.
Filing Status:
Category affecting certain Kentucky tax calculations: Single, Married Filing Jointly, Married Filing Separately (combined return), or Head of Household.
Standard Deduction:
A fixed amount ($3,270 for all filing statuses in Tax Year 2025) subtracted from Kentucky AGI before calculating tax. The alternative is to itemize deductions using Kentucky Schedule A.
Occupational License Tax:
Local tax levied by Kentucky cities and counties on wages earned within the jurisdiction and on net profits from self-employment. Separate from state income tax and not reported on Kentucky state income tax returns.
Modified Gross Income:
Federal AGI plus interest income from other states’ municipal bonds plus pension income from qualifying lump-sum distributions. Used to determine whether a Kentucky return must be filed.
Update History
February 2026 — Initial Publication
- Published comprehensive Kentucky income tax guide for Tax Year 2025
- All sections verified from official Kentucky Department of Revenue sources
- Tax rate: 4% flat (confirmed from 2025 Withholding Tax Formula)
- Standard deduction: $3,270 (confirmed from DOR announcement, August 2024)
- Pension exclusion: $31,110 (confirmed from Schedule M 2025)
- Reciprocal states: IL, IN, MI, OH, VA, WV, WI (confirmed from Form 740-NP-R 2025)
Verification Schedule:
- Annual Update: January (new tax rates, standard deduction)
- Mid-Year Review: June (legislative changes)
- Continuous Monitoring: Emergency tax legislation, disaster relief declarations
- Source Link Check: Quarterly (all .gov URLs verified functional)
Important 2026 Change Note: Kentucky’s tax rate for Tax Year 2026 (filed in 2027) will be 3.5%, with the standard deduction increasing to $3,360. This page will be updated in January 2027 to reflect Tax Year 2026 information.
Last comprehensive update: February 19, 2026
Next scheduled review: January 2027