Kentucky will tax individual income at 3.5% starting January 1, 2026, cutting the rate from 4.0% under H.B. 1 signed by Governor Andy Beshear.
For many newcomers, that change shows up first on paychecks, because employers must adjust withholding tables even before any 2026 return is filed in Kentucky.
The cut applies to all filing statuses, and Kentucky no longer uses graduated brackets—replacing them with a flat-rate structure on taxable income statewide.
If you moved for work, school, or family, you may need to budget for both federal taxes in the United States 🇺🇸 and Kentucky taxes.
Rate cut begins in 2026
State lawmakers tied this year’s rate change to earlier “trigger” rules in House Bill 8, and budget officials said the triggers were met for 2026.
The 2025 legislative session approved H.B. 1, and Governor Andy Beshear signed it, setting the lower rate effective January 1, 2026 for calendar-year income taxes.
Because the change is dated to the start of the year, workers should expect new withholding amounts for the first paycheck in 2026 in Kentucky.
People who arrive midyear on a visa or green card can still be subject to Kentucky withholding once they earn Kentucky wages, regardless of residency.
That includes H-1B professionals, F-1 students with authorized work, refugees, and U.S. citizens returning home, since payroll rules follow work location for Kentucky employers specifically.
Kentucky’s Department of Revenue also uses the 3.5% rate in its 2026 withholding formula, so payroll software updates matter for accuracy and to avoid surprises.
Flat-rate structure and taxable income
Kentucky’s flat-rate structure means one rate applies after deductions, not a ladder of brackets that climbs as income rises for any filer in 2026 returns.
For tax year 2026, the rate is 3.5% of Kentucky taxable income, and the state applies it the same way across filing statuses each season.
Taxable income is your income after Kentucky’s adjustments and the standard deduction, and it is this taxable amount that faces 3.5% under the flat-rate structure.
The Kentucky Department of Revenue explains the rate in its employer guidance, which helps companies calculate withholding for weekly, biweekly, semimonthly, or monthly pay periods.
Even with a single rate, immigrants often see differences between Kentucky withholding and what they owe at filing time, especially when they have more than one job.
A flat-rate structure can feel simpler, but it does not remove the need to track year-end documents, like your W-2, for state returns in Kentucky.
Standard deduction and payroll withholding
Kentucky set its 2026 standard deduction at $3,360, and that number is built into the Department of Revenue’s withholding formula for employer payroll calculations statewide.
In everyday terms, the standard deduction is the slice of income Kentucky does not tax, and it reduces the taxable income that gets 3.5% applied.
Department of Revenue examples illustrate how withholding is calculated:
- Monthly pay example:
- Monthly wages: $3,270 → annualized to $39,240
- Subtract standard deduction: $3,360 → taxable income $35,880
- Annual Kentucky tax: $1,255.80 (3.5% of $35,880)
- Monthly withholding: $104.65
- Biweekly pay example:
- Biweekly wages: $1,500 → annualized to $39,000
- Taxable income ≈ $35,640
- Annual Kentucky tax ≈ $1,247.40
- Biweekly withholding ≈ $47.99
Employers often treat these figures as a starting point, but they still need correct employee data, including filing status and any extra withholding requests.
Kentucky’s Department of Revenue posts the latest instructions and tables on its Withholding Tax page, which employers use for compliance with the 3.5% rate today.
What immigrants and employers should know
A state rate cut does not change an immigration case, but take-home pay can shift in 2026 paychecks.
A worker’s U.S. status—temporary visa, lawful permanent resident, or citizen—doesn’t change the Kentucky flat-rate structure applied to wages earned.
Residency for tax filing can change, though: some people become part-year residents after moving to Kentucky, and that affects which income is taxed.
If your employer updates withholding for the 3.5% rate and the $3,360 standard deduction, you may owe less at filing—but check your full tax picture.
Practical considerations:
– New arrivals supporting family abroad, paying tuition, or sending remittances often plan month to month, so a lower withholding rate can matter.
– A rate cut doesn’t remove other costs such as local taxes, health insurance, or federal withholding on Form W-4.
– Employers hiring foreign nationals should promptly update payroll systems for the 3.5% rate, the standard deduction, and the DOR formula.
– HR teams should inform staff that Kentucky uses a flat-rate structure—pay raises won’t push employees into a higher state bracket.
VisaVerge.com reports that state tax shifts can influence where mobile workers settle, because small paycheck differences add up over a year for many families.
If you file a Kentucky return for 2026, expect the same 3.5% rate to apply after deductions, not a tiered schedule based on income size.
Key takeaway: Kentucky’s 2026 approach is simple—subtract the standard deduction, then apply 3.5% to the remaining taxable income under a statewide flat-rate system.
Official sources and next steps
Official guidance matters because online calculators often lag, and employers must follow the Kentucky Department of Revenue formula when withholding each pay period.
The Department’s materials confirm both key inputs for 2026: the 3.5% rate and the $3,360 standard deduction used in withholding computations for Kentucky wages paid.
Cash-paid workers or contractors often have no withholding, risking a state tax bill later. If you earn Kentucky wages across multiple jobs, track total income and file year-end to avoid surprises.
Other coverage notes:
– EY and other outlets detail the statutory path: H.B. 1 enacted the cut, and Governor Andy Beshear signed it into law.
– Louisville Public Media reported that budget triggers set in prior law allowed the reduction, linking the rate change to state revenue and policy targets.
Practical next steps and reminders:
1. Save pay stubs from early 2026 to verify whether withholding switched to 3.5% as required.
2. Remember that cash-paid workers or contractors may not have withholding, so the 3.5% structure could lead to a state tax bill later.
3. If you have wages in multiple states, confirm which wages Kentucky considers taxable.
4. International students and part-year residents should record move-in dates and first work days—these facts guide state return preparation and withholding reviews.
5. Compare your 2025 withholding to 2026 using DOR tables as a reference.
6. If questions remain, ask your payroll office for the Kentucky formula it used and keep the Department of Revenue link handy during tax season.
For employer compliance and employee planning, following the Department of Revenue tables and confirming payroll updates are the essential steps to avoid surprises in 2026.
Starting January 1, 2026, Kentucky will reduce its individual income tax rate to a flat 3.5%. This change follows legislative triggers and the signing of H.B. 1. The new rate applies to all taxable income after a $3,360 standard deduction. Employers must update their payroll systems to ensure accurate withholding, impacting everyone from local citizens to international professionals working within the state.
