Known for its horse races and bourbon distilleries, Kentucky also presents a fairly straightforward tax structure. This article unfolds the tax brackets, deductions, capital gains tax, and local income taxes in Kentucky, offering a simplified guide for individuals at every tax experience level.

1. Income Tax

The Bluegrass State adopts a flat tax rate for all income levels, alongside offering specific deductions and credits to ease the tax burden on individuals and families.

• Tax Brackets:

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  • Flat rate of 4.5% on all income.

  
  

• Deductions:

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  • Married: $5,960

  • Others: $2,980

  
  

• Child and Dependent Care Credit:

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  • 20% of the federal credit.

  
  

• Reciprocal Agreements:

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  • Ohio, Illinois, Michigan, Wisconsin, Pennsylvania, Indiana, and West Virginia.

2. Capital Gains Tax

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Capital gains, both short-term and long-term, are taxed at the same rate as ordinary income in Kentucky.

3. Local Income Taxes

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Various cities in Kentucky levy their own income taxes, with rates varying across different regions:

• Local Tax Rates:

  • Bowling Green: 1.85%

  • Covington: 2.45% (max withholding wage base of $160,200)

  • Florence: 2.00% (max withholding wage base of $160,200)

  • Frankfort: 1.95%

  • Lexington-Fayette: 2.25%

  • Louisville: 1.45%

  • Owensboro: 1.78%

  • Paducah: 2.00%

  • Richmond: 2.00%

Conclusion

Understanding Kentucky’s tax framework is instrumental for financial planning. This guide elucidates the state’s tax brackets, deductions, capital gains, and local taxes, making the journey through Kentucky’s tax landscape smoother and less intimidating.