Kentucky Retirement

If you live in Kentucky you can deduct up to $41,110 in pension income from your state income tax. That means you will not have to list your pension on your state income tax return if it is less $41,100 a year. If your pension income exceeds $41,110 you will have to list pension income on Schedule P of your State Tax Return.

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Kentucky Income Tax

State income tax in Kentucky is based on your Kentucky adjusted gross income, not the adjusted gross income on your federal tax returns. This means that you may not have to pay state income tax in Kentucky even if you have to pay federal income tax. Kentucky's adjusted gross income is different because the state will not tax some incomes taxed by the federal government.

Social Security is not taxable in Kentucky. This means you do not have to list Social Security payments on your state tax return. If you live in Kentucky and you received $11,000 in Social Security and $40,000 from your pension, you would not have to list that money on your state income tax return. Medicare Part B payments can be deducted from your Kentucky state income tax as well.

Kentucky has a graduated income tax which means your tax rate is based on the amount of taxable income you have. In 2010 the rate was 2% for taxable income up to $3,000, 3% for $3,001-$4,000 of taxable income, 4% for $4,001-$5,000 of taxable income, 5% for $5,001-$8,000 of taxable income, 5.8% for $8,000-$75,000 of taxable income, and 6% for taxable income over $75,001.

Other Kentucky Taxes

The Kentucky Department of Revenue can collect unpaid sales tax or use tax on items ordered from out of state. This would be collected just like income taxes. Kentucky also has Inheritance and Estate Taxes. The amount of these death taxes is based on the federal estate tax.

Kentucky Property Tax

Property tax in Kentucky is based on the cash value of your property. The cash value is determined by the county assessor and the county government collects this tax. The property tax rate in Kentucky is 12.2ยข per $100 of property value.

Property tax bills in Kentucky go out on Jan. 1 and are usually due by March 1. If you own a home in Kentucky you can apply for a $34,000 Homestead Tax exemption through the state Department of Revenue.

Kentucky collects property taxes on automobiles as well as real estate. The state property tax rate on automobiles is 45 cents for each $100 of Bluebook value for most vehicles. For antique and other older vehicles the rate is 25 cents for $100 of value.

Kentucky Sales Tax

Kentucky has a flat state sales tax of 6%. There are no additional local taxes in Kentucky so the sales tax rate is the same throughout the state. Food purchased from grocery stores is exempt from Kentucky's state sales tax. That means you would not pay taxes on food from the grocery store but you would pay sales tax on a bottle of laundry detergent.

Capital: Frankfort
Cost of Living Rank: #1
Sales Tax: 6.0%
Income Tax: 2.0% - 6.0%
State Website: