Kentucky — Personal Income Tax

Kentucky imposes a personal income tax on residents, part-year residents, and nonresidents with Kentucky-source income. The current tax rate is 3.5 percent for taxable years beginning on or after January 1, 2026. The rate was reduced from 4 percent pursuant to House Bill 1, enacted during the 2025 Regular Session.

Source: KRS 141.020

Source: Kentucky Department of Revenue, Individual Income Tax

## Residency Status

Resident. A resident is either (1) an individual domiciled in Kentucky, or (2) an individual not domiciled in Kentucky who maintains a place of abode in Kentucky and spends in the aggregate more than 183 days of the taxable year in Kentucky. Residents are taxed on all income regardless of source.

Source: KRS 141.010

Source: 103 KAR 17:010

Part-year resident. A part-year resident is an individual who moved into or out of Kentucky during the taxable year. Part-year residents are subject to tax on all income during the portion of the year they were Kentucky residents and on Kentucky-source income during the portion of the year they were nonresidents.

Source: KRS 141.020(6)

Nonresident. A nonresident is taxable only on Kentucky-source income, which includes income from labor performed in Kentucky, business conducted in Kentucky, tangible property located in Kentucky, and intangible property that has acquired a business situs in Kentucky.

Source: KRS 141.020(4)

## Domicile Principles

Domicile means the place where an individual has established permanent residency. A domicile once obtained continues until a new domicile is acquired. Domicile is not changed by removal for a definite period or for incidental purposes. To constitute a change of domicile, there must be intent to change, actual removal, and a new abode.

Source: 103 KAR 17:010, Section 1 and Section 3

## Filing Requirements

Full-year residents must file Form 740 if both of the following are met: (1) modified gross income exceeds the federal poverty level threshold for family size (e.g., $15,650 for family size of one for recent tax years), and (2) Kentucky adjusted gross income exceeds thresholds that vary by filing status and age. For tax year 2025, the Kentucky adjusted gross income threshold is $3,270 for a single filer under age 65, and $4,270 for a single filer age 65 or over (not blind). For tax year 2026, these thresholds increase to $3,360 and $4,360, respectively. See the Filing Threshold Variations by Age and Blindness Status section for complete threshold tables.

Source: Kentucky Form 740 Instructions (2025).pdf)

Part-year residents and nonresidents file Form 740-NP.

Source: Kentucky Department of Revenue, Individual Income Tax

Self-employed individuals who are Kentucky residents must file a return regardless of the amount of Kentucky adjusted gross income if gross receipts from self-employment exceed the modified gross income threshold.

Source: Kentucky Form 740 Instructions (2025).pdf)

## Special Rules

Military personnel retain the domicile they had when entering military service. Kentucky residents at the time of induction remain liable for Kentucky income tax on all income regardless of where military services are performed, but active-duty military pay is exempt from Kentucky income tax.

Source: 103 KAR 17:010, Section 6

Reciprocal agreements. Kentucky has reciprocal tax agreements with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin. Wages and salaries earned in Kentucky by residents of those states are exempt from Kentucky income tax, and Kentucky residents are exempt from income tax on wages and salaries earned in those states. The Virginia agreement applies only to taxpayers who commute daily.

Source: 103 KAR 17:010, Section 7

Kentucky imposes a flat tax on net income. The rate has decreased in recent years pursuant to legislation enacted during the 2022, 2023, and 2025 Regular Sessions.

For taxable years beginning on or after January 1, 2026, the tax rate is 3.5 percent of net income.

For taxable years beginning on or after January 1, 2024 and before January 1, 2026, the tax rate was 4 percent of net income.

For taxable years beginning on or after January 1, 2023 and before January 1, 2024, the tax rate was 4.5 percent of net income.

The 3.5 percent rate effective January 1, 2026, was enacted by House Bill 1 during the 2025 Regular Session. That legislation also established a mechanism for potential future rate reductions contingent upon specific fiscal conditions, including the balance in the Budget Reserve Trust Fund and General Fund revenues. Under that mechanism, the Office of State Budget Director must review reduction conditions annually and report to the Interim Joint Committee on Appropriations and Revenue whether financial thresholds have been met. If the conditions are satisfied, the General Assembly may take action to reduce the tax rate for subsequent taxable years.

Source: KRS 141.020(2)(c)

Kentucky's filing requirement for full-year residents depends in part on whether the taxpayer's Kentucky adjusted gross income exceeds a threshold amount that varies based on the taxpayer's age and blindness status. These thresholds—referred to in the Form 740 Instructions as Chart B—increase for taxpayers age 65 or older and for taxpayers who are blind.

## Single Filers

For tax year 2025, a single filer must file if Kentucky adjusted gross income exceeds:

• $3,270 if under age 65 and not blind
• $4,270 if age 65 or over, or blind (but not both)
• $5,270 if age 65 or over and blind

For tax year 2026, based on the announced standard deduction of $3,360, the corresponding thresholds are:

• $3,360 if under age 65 and not blind
• $4,360 if age 65 or over, or blind (but not both)
• $5,360 if age 65 or over and blind

## Married Taxpayers Filing Jointly or on a Combined Return

For tax year 2025, married taxpayers filing jointly or on a combined return must file if Kentucky adjusted gross income exceeds:

• $3,270 if both spouses are under age 65
• $4,270 if one spouse is age 65 or over
• $5,270 if both spouses are age 65 or over

For tax year 2026, based on the announced standard deduction of $3,360, the corresponding thresholds are:

• $3,360 if both spouses are under age 65
• $4,360 if one spouse is age 65 or over
• $5,360 if both spouses are age 65 or over

The married-taxpayer thresholds in Chart B apply regardless of whether one or both spouses are blind, although the instructions do not explicitly state separate blindness adjustments for married filers.

## Threshold Structure and Relationship to Standard Deduction

Chart B filing thresholds track the standard deduction amount. The base threshold (under age 65, not blind) equals the standard deduction ($3,270 for 2025; $3,360 for 2026). The age-65-or-blind threshold adds $1,000 to the base. The age-65-and-blind threshold adds $2,000 to the base. This structure mirrors the federal additional standard deduction amounts for age and blindness, though Kentucky's base standard deduction amount differs from the federal amount.

## Interaction with Modified Gross Income Threshold

Meeting the Kentucky adjusted gross income threshold in Chart B is not sufficient by itself to trigger a filing requirement. Full-year residents must also meet the modified gross income threshold in Chart A, which is based on family size and corresponds to the federal poverty level. For tax year 2025, the modified gross income thresholds are $15,650 (family size of one), $21,150 (family size of two), $26,650 (family size of three), and $32,150 (family size of four or more).

A return is required only if both the modified gross income threshold (Chart A) and the Kentucky adjusted gross income threshold (Chart B) are exceeded.

## Annual Adjustment

The Kentucky adjusted gross income filing thresholds in Chart B are indexed to the standard deduction amount, which is adjusted annually for inflation under KRS 141.081(2)(a). The Department of Revenue publishes the updated amounts each year, typically in the late summer or early fall for the following tax year.

Source: Kentucky Form 740 Instructions (2025).pdf)

Source: Kentucky Department of Revenue, Kentucky DOR Announces 2026 Standard Deduction (September 4, 2025)

Source: KRS 141.081

Kentucky individual income tax returns are due on or before the 15th day of the fourth month following the close of the taxable year. For calendar-year filers, the deadline is April 15. Kentucky automatically grants a six-month extension to file if a federal extension is filed; no separate Kentucky extension form is required. The extension applies only to filing, not to payment of tax owed, which remains due by the original deadline.

Source: Kentucky Form 740 Instructions.pdf)

Kentucky allows taxpayers to elect a standard deduction in lieu of itemizing deductions. The standard deduction amount is adjusted annually for inflation pursuant to KRS 141.081(2)(a).

## Tax Year 2026

For taxable year 2026, the standard deduction is $3,360. The Kentucky Department of Revenue announced this amount on September 4, 2025, representing a $90 increase from the 2025 amount. The $3,360 deduction is incorporated into the Department's 2026 withholding formula and 2026 tax forms.

## Tax Year 2025

For taxable year 2025, the standard deduction is $3,270.

## Filing Status and Joint Filers

The standard deduction is a flat amount that does not vary by filing status. Married couples filing jointly receive only one standard deduction—the joint standard deduction is the same $3,360 for tax year 2026 (or $3,270 for tax year 2025), not a doubled amount.

## Itemizing Alternative

Taxpayers may instead elect to itemize deductions under federal rules as modified by Kentucky law. If one spouse itemizes deductions, the other must also itemize when filing jointly or separately on a combined return.

## Interaction with Tax Calculation

The standard deduction reduces Kentucky adjusted gross income to arrive at Kentucky taxable income, to which the flat tax rate is then applied (3.5% for taxable year 2026; 4% for taxable year 2025).

Source: KRS 141.081

Source: Kentucky Department of Revenue, Kentucky DOR Announces 2026 Standard Deduction (September 4, 2025)

Source: Kentucky Department of Revenue, 2026 Kentucky Withholding Tax Formula

Source: Kentucky Form 740 Instructions (2025).pdf)

Kentucky employers must withhold income tax from wages paid to employees under KRS 141.310. Wages or other payments for services performed in Kentucky that are subject to federal income tax withholding are subject to Kentucky withholding.

## Withholding Rate

For taxable year 2026, employers apply a 3.5 percent flat withholding rate. The rate decreased from 4 percent effective January 1, 2026, consistent with the individual income tax rate reduction enacted by House Bill 1 during the 2025 Regular Session.

For taxable years 2024 and 2025, employers applied a 4 percent flat withholding rate.

For taxable year 2023, employers applied a 4.5 percent flat withholding rate.

The Kentucky Department of Revenue annually publishes a withholding formula and withholding tables to assist employers in computing the correct withholding amount. The 2026 Kentucky Withholding Tax Formula applies the 3.5 percent rate to Kentucky taxable wages (annualized wages less the annual standard deduction of $3,360 for 2026). Employers may use either the computational formula or the published withholding tables for each payroll period (daily, weekly, bi-weekly, semi-monthly, monthly, etc.).

## Reciprocal Agreement Exemptions

Wages earned in Kentucky by nonresident employees who are residents of Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, or Wisconsin are exempt from Kentucky withholding under reciprocal tax agreements. The Virginia agreement applies only to employees who commute daily to Kentucky. The Ohio agreement does not apply to shareholder-employees who are "twenty percent or greater" direct or indirect equity investors in an S corporation.

Employers may cease withholding after the employee completes and files Form K-4, Kentucky's Withholding Certificate, claiming the applicable reciprocal-state exemption.

## Gambling Winnings

Every person making a payment of gambling winnings that is subject to federal tax withholding must deduct and withhold Kentucky income tax. The withholding tax rate for gambling winnings is 3.5 percent of the proceeds paid (the amount of winnings minus the amount of the bet) for 2026.

Source: KRS 141.310

Source: KRS 141.020

Source: Kentucky Department of Revenue, 2026 Kentucky Withholding Tax Formula

Source: Kentucky Department of Revenue, Withholding Kentucky Income Tax Instructions for Employers (November 2025)

Source: Kentucky Form K-4, Kentucky's Withholding Certificate (2026)%20(2026).pdf)

Kentucky provides a nonrefundable family size tax credit for qualifying taxpayers whose modified gross income is below 133 percent of the threshold amount based on the federal poverty level. The credit reduces Kentucky income tax liability but cannot reduce it below zero. The credit is applied against the tax liability calculated under KRS 141.020.

## Threshold Amount

The threshold amount is the federal poverty level for the taxpayer's family size, determined by reference to the Health and Human Services poverty guidelines available on June 30 of the taxable year under 42 U.S.C. § 9902(2). For taxable year 2025, the threshold amounts are:

• Family size of one: $15,650
• Family size of two: $21,150
• Family size of three: $26,650
• Family size of four or more: $32,150

Family size is determined by the number of qualifying dependents as defined in Internal Revenue Code Section 152(c), plus the taxpayer(s). A qualifying dependent includes a qualifying child who lives in the household but cannot be claimed as a dependent if the provisions of IRC Section 152(e)(2) or 152(e)(4) apply (typically referring to children of divorced or separated parents where the noncustodial parent claims the dependency exemption).

## Credit Amount

For modified gross income at or below 100% of the threshold amount: The family size tax credit equals the taxpayer's entire tax liability—effectively reducing Kentucky income tax to zero.

For modified gross income between 100% and 133% of the threshold amount: The credit equals a percentage of the taxpayer's tax liability. The percentage phases out in steps based on modified gross income:

1. 100% to 104% of threshold: Credit reduces tax by a fixed dollar amount:

• $11 for family size of one
• $7 for family size of two
• $3 for family size of three

1. 104% to 108% of threshold: Credit reduces tax by:

• $20 for family size of one
• $13 for family size of two
• $6 for family size of three

1. 108% to 112% of threshold: The statute continues a similar phase-out structure with additional tiers through 133% of the threshold amount.

For modified gross income at or above 133% of the threshold amount: No credit is allowed.

## Filing Status Rules

For married couples filing jointly, the family size tax credit is computed on the basis of joint modified gross income and applied against joint tax liability.

For married couples living together who file separate returns or file separately on a combined return, the family size tax credit is computed on the basis of their combined modified gross income (with any separately computed modified gross income of less than zero treated as zero) and is applied against their combined tax liability.

## Modified Gross Income

The credit is based on modified gross income, not Kentucky adjusted gross income. Modified gross income is defined at KRS 141.010 and generally equals the greater of (a) adjusted gross income under federal law, or (b) adjusted gross income with certain add-backs such as tax-exempt interest from non-Kentucky municipal bonds, lump-sum distributions, and certain other items.

## Effective Date

The family size tax credit has been in effect for taxable years beginning after December 31, 2004. The threshold amounts are updated annually to reflect federal poverty guidelines.

Source: KRS 141.066

Source: Kentucky Form 740-NP Instructions (2025).pdf)