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Kentucky State Taxes

Kentucky State Taxes

State Taxes at a Glance – Kentucky

Type of Tax2023
Individual Rates4.50 (flat tax)
Corporate / Business Tax Rates5.00 (flat tax)
Gross Receipts TaxNone
Sales Tax6.00% (average)
Property Taxes0.82% as a percentage of primary home
Estate or Inheritance TaxYes

State Income Taxes in Kentucky

The state of Kentucky is one of few states with a flat individual income taxKentucky’s individual tax rate is 4.5% of Federal AGI (adjusted gross income).

Local & City Income Tax – Similar to Ohio, Kentucky also has Local & City income tax rates in addition to the 5.00% state tax rate. The Local & City tax rates range from nothing to 2.50% depending on the jurisdiction (the average rate is 1.31%).

State Business Taxes in Kentucky

Similar to Colorado, the state of Kentucky has the same tax rate for both individual and corporate taxes, which is 5.00%

Gross Margins Tax in Kentucky

In addition to a corporate income tax, the State of Kentucky has a Gross Receipts tax commonly referred to as LLET (Limited Liability Entity Tax). The tax is subject to C Corps, S Corps, LLCs, LPs, and LLP. The minimum LLET tax is $175 for business with less than $3M in gross receipts.

If you are a C Corporation, you may get a tax credit on your corporate taxes for anything you paid over $175 in LLET tax.

Sales and Property Taxes in Kentucky

Sales Taxes – unlike most states, Kentucky only has a state sales tax rate (no local rate.) The state sales tax rate is 6.00%.

Property Taxes in Kentucky – the average property tax rate for residential property in the state of Kentucky is 0.82%, which is slightly below the country’s average rate of 1.08%.

Inheritance Tax in Kentucky

Kentucky is one of only 6 states in the country that has an inheritance tax. Fortunately, Kentucky’s inheritance tax does not affect lineal heirs, others will have to pay tax. Kentucky breaks out your exemptions and rates depending on which class you belong in:

Class A Close family members are exempt from inheritance tax

  • Parents
  • Children
  • Spouses
  • Grandkids
  • Brothers and Sisters (including half-brothers and half-sisters)

Class B – Family members, not included in Class A. They receive an $1,000 exemption, and the remaining inheritance is taxed between 4% – 16%.

  • Nieces and nephews (including half-nieces and half-nephews)
  • Son-in-law
  • Daughter-in-law
  • Aunts and Uncles
  • Great-grandkids

Class C – anyone not included in Class A or Class B. They receive only a $500 exemption and are taxed between 6% – 16%.

The tax rates are on a progressive scale and go up depending on the amount of inheritance you receive. Learn more at the Kentucky Dept of Revenue website – click here.

Kentucky DMV Fees

The state of Kentucky imposes a personal property tax paid to your county based on the vehicles value. That means it is deductible on your federal tax return. You may look up your Kentucky DMV fees here.

Kentucky Domicile

Kansas’s presumption is that it’s your permanent place of abode (domicile) if you’ve lived there for over 183 days within a taxable year, and who maintains a place home during that period.

State Tax on Social Security Benefits

Even though Kentucky has an income tax, social security benefits are not subject to state tax in “The Bluegrass State.”

Payroll taxes in Kentucky

Payroll taxes usually consist of three factors. They are the wage base, range of rates, number of schedules. Below is an outline of the three:

  • Wage Base – Kentucky has a wage base of $11,100
  • UI Rates – range from 1.00% to 10.00%
  • Schedules – Kentucky has multiple rate schedules regarding UI rates

Kentucky Business Entities – LLCs

Kentucky is inexpensive to to set up your LLC. Here are some important facts:

  • Kentucky’s annual LLC fee is only $15.
  • When you register with the state, you pay a one time fee of $40
  • Secretary of State of Kentucky website – click here