How to compute ky-income-tax for Kentucky, tax year 2025: rates, thresholds, and step-by-step rules with primary-source citations.
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Flat income tax rate — TY2025
4.00%KRS 141.020
Flat income tax rate — TY2026
3.50%H.B. 1 (2025); KRS 141.020 as amended
Rate structure
Flat — no graduated brackets; same rate for all filing statusesKRS 141.020
Standard deduction amount — TY2025
$3,270KRS 141.081
Standard deduction amount — TY2026
$3,360H.B. 1 (2025); DOR announcement
Personal tax credit per taxpayer — TY2025
$40KRS Chapter 141 — Income Taxes
Form 740 filing deadline — TY2026
April 15, 2027KRS Chapter 141 — Income Taxes
Estimated tax payment threshold — owing amount triggering requirement
$500 or moreKRS 141.305
1st quarter estimated tax due date
April 15KRS 141.305
2nd quarter estimated tax due date
June 15KRS 141.305
3rd quarter estimated tax due date
September 15KRS 141.305
4th quarter estimated tax due date
January 15 (following year)KRS 141.305
Social Security benefits exemption
Fully exempt (100%)KRS 141.019(1)(a)
Railroad retirement benefits exemption
Fully exempt (100%)KRS 141.019
Kentucky pension exclusion — qualifying retirement income (TY2025)
Up to $31,110KRS 141.019(1)(l)
U.S. government obligation interest exemption
Fully exemptKRS 141.010(10)(d)
Interest on obligations of other states — add-back required
Full amount added backKRS 141.010(10)
QBI deduction (Section 199A) — Kentucky conformity
Not allowed; Kentucky starts from federal AGI (before QBI deduction)KRS Chapter 141 — Income Taxes
Louisville Metro local occupational license tax rate (approximate)
~2.2%Louisville Metro Revenue Commission — Occupational License Tax
Lexington-Fayette local occupational license tax rate (approximate)
~2.25%Lexington-Fayette Urban County Government — Division of Revenue
Form 740 Line 5 — starting point for Kentucky return
Federal AGI (Form 1040, Line 11)KRS 141.010; Form 740
Form 740 Line 14 — Kentucky tax computation (TY2026)
Line 13 × 3.5%KRS 141.020; Form 740
Scope. This skill covers Kentucky Form 740 (Full-Year Resident Individual Income Tax Return) for sole proprietors and single-member LLCs. It addresses the flat state income tax and Kentucky-specific modifications to federal AGI. It does NOT cover part-year or nonresident returns (Form 740-NP), corporate returns (Form 720), or LLET.
Quality tier. Q3 — AI-drafted, not independently verified. All outputs must be reviewed by a qualified tax professional before filing.
Section 1 metadata table
| Field | Value |
|---|---|
| Jurisdiction | Kentucky (US-KY) |
| Tax authority | Kentucky Department of Revenue |
| Filing portal | Kentucky E-File |
| Legislation | KRS Chapter 141 — Income Taxes |
| Primary form | Form 740 (Kentucky Individual Income Tax Return — Full-Year Resident) |
| Filing deadline | April 15, 2027 (for tax year 2026) |
| Version | 0.1 |
| Date | May 22, 2026 |
| Validation status | AI-drafted — Q3 |
State income tax rate table (KRS 141.020)
| Tax year | Rate | Source |
|---|---|---|
| 2025 | 4.00% | KRS 141.020 |
| 2026 | 3.50% | H.B. 1 (2025); KRS 141.020 as amended |
Kentucky imposes a flat income tax rate. There are no graduated brackets. The same rate applies to all filing statuses.
Standard deduction table (KRS 141.081)
| Tax year | Amount | Source |
|---|---|---|
| 2025 | $3,270 | KRS 141.081 |
| 2026 | $3,360 | H.B. 1 (2025); DOR announcement |
Kentucky allows either the standard deduction or itemized deductions (not both).
Kentucky provides a personal tax credit rather than a traditional exemption. For TY2025, the credit is $40 per taxpayer. Dependent credits may also apply.
Additions to income table
| Item | Description | Source |
|---|---|---|
| State/local income tax refunds | If deducted federally and included as income in federal AGI | KRS 141.010 |
| Interest from other states' bonds | Interest on obligations of other states must be added back | KRS 141.010(10) |
| Lump-sum distribution exclusion | If federal exclusion was taken | KRS 141.010 |
| IRC differences | Kentucky decouples from certain post-2017 TCJA provisions — review annually | KRS 141.0101 |
Subtractions from income table
| Item | Description | Source |
|---|---|---|
| U.S. government interest | Interest on U.S. obligations | KRS 141.010(10)(d) |
| Social Security benefits | Kentucky fully exempts Social Security benefits | KRS 141.019(1)(a) |
| Railroad retirement benefits | Fully exempt | KRS 141.019 |
| Kentucky pension exclusion | Up to $31,110 (2025) for qualifying retirement income | KRS 141.019(1)(l) |
| Military pay | Various exclusions for active-duty service | KRS 141.019 |
Estimated tax payments table
| Voucher | Due date |
|---|---|
| 1st quarter | April 15 |
| 2nd quarter | June 15 |
| 3rd quarter | September 15 |
| 4th quarter | January 15 (following year) |
Use Form 740-ES for estimated payments.
Tier 1 rules table
| Rule | Description |
|---|---|
| R-1 | Apply the flat 3.5% rate (TY2026) to Kentucky taxable income. No brackets. |
| R-2 | Start from federal AGI and apply Kentucky modifications. |
| R-3 | Subtract either the standard deduction ($3,360 for TY2026) or itemized deductions. |
| R-4 | Social Security benefits are fully exempt. |
| R-5 | U.S. government bond interest is exempt. |
| R-6 | Add back interest from out-of-state municipal bonds. |
| R-7 | The pension exclusion is up to $31,110 (2025 amount) for qualifying retirement income. |
| R-8 | Kentucky does NOT have local/county income taxes at the state level, but local occupational taxes are separate obligations. |
Tier 2 rules table
| Rule | Description |
|---|---|
| J-1 | Determine whether retirement income qualifies for the pension exclusion when income comes from multiple sources. |
| J-2 | Evaluate whether Kentucky itemized deductions exceed the standard deduction. |
| J-3 | Assess IRC conformity issues when Kentucky decouples from recent federal changes (review annually). |
| J-4 | Determine local occupational tax obligations based on where self-employment activity is performed. |
| J-5 | Evaluate credit for taxes paid to other states when the taxpayer has multi-state income. |
Supplier pattern library table
| Pattern | Kentucky treatment |
|---|---|
| Freelance income (Schedule C) | Flows through federal AGI → KY AGI. Subject to flat 3.5% state tax (TY2026). Also potentially subject to local occupational taxes. |
| Rental income (Schedule E) | Flows through federal AGI → KY AGI. Subject to flat rate. |
| Capital gains | Fully taxable at the flat rate. |
| Interest / dividends | Taxable except U.S. government obligations (exempt). |
| Social Security | Fully exempt from Kentucky income tax. |
| Pension / retirement | Up to $31,110 exempt under the pension exclusion (qualifying plans only). |
Form mapping table
| Form 740 line | Description | Source |
|---|---|---|
| Line 5 | Federal AGI (Form 1040, Line 11) | Federal return |
| Line 6 | Additions to income | KRS 141.010 |
| Line 7 | Subtotal (Line 5 + Line 6) | Computed |
| Line 8 | Subtractions from income (Schedule M) | KRS 141.019 |
| Line 9 | Kentucky AGI (Line 7 − Line 8) | Computed |
| Line 11 | Standard or itemized deduction | KRS 141.081 |
| Line 13 | Kentucky taxable income | Line 9 − Line 11 |
| Line 14 | Kentucky tax (Line 13 × 3.5% for TY2026) | KRS 141.020 |
| Lines 22–27 | Credits | Various |
| Lines 28–35 | Payments, withholding, estimated payments | Various |
| Line 36 | Balance due or refund | Computed |
Refusal catalogue table
| Code | Situation | Action |
|---|---|---|
| REF-KY-01 | Taxpayer is a part-year or nonresident | Refuse; requires Form 740-NP. |
| REF-KY-02 | Taxpayer has LLET obligations | Refuse; requires Form 725 and specialist review. |
| REF-KY-03 | Taxpayer has partnership or S-corp K-1 with Kentucky-specific adjustments | Flag for reviewer. |
| REF-KY-04 | Taxpayer claims complex credits (e.g., KY Historic Preservation, Angel Investor, Film Industry) | Flag for reviewer. |
| REF-KY-05 | Taxpayer has local occupational tax filings in multiple jurisdictions | Flag for reviewer — requires separate local filings. |
This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional before filing or acting upon.
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Other Kentucky computations in the OpenAccountants Tax Library.
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