Kentucky 2025 Tax: Flat 4% Rate, $3,270 Deduction, 2026 Reset

(KENTUCKY) Kentucky residents, including many new immigrants building their first life in the United States 🇺🇸, will keep paying a flat 4% state income tax through the 2025 tax year, with a standard deduction set at $3,270. Then, starting January 1, 2026, the state will cut the income tax rate to 3.5% and raise the standard deduction to $3,360. At the same time, lawmakers are openly chasing a long-term plan to eventually end the individual income tax, while widening the 6% sales tax to more services to help replace lost revenue.

2025 filings: what stays the same for a flat tax state

For people who will file their 2025 Kentucky income tax return in 2026, the basic rule is simple: Kentucky taxes taxable income at one rate: 4%. That means a nurse, an engineer on a work visa, and a restaurant worker all face the same state tax rate on taxable income, even though their incomes differ.

The standard deduction matters because it reduces income before the tax rate is applied. For 2025, that deduction is $3,270 for all filers under the source material. In everyday terms, it means the first $3,270 of income is not counted when Kentucky calculates state income tax.

A simplified way to think about 2025:

• Flat rate: 4%
• Standard deduction: $3,270
• Basic formula: (Total Kentucky income − 3,270) × 4%

For immigrants, the flat structure can feel less confusing than states with many brackets and credits. Once you know your wages and the standard deduction, you can quickly estimate what Kentucky will take over the year.

January 1, 2026: rate drops to 3.5% and deduction rises

The next change is written into state law: effective January 1, 2026, Kentucky’s individual income tax rate will fall from 4% to 3.5%, and the standard deduction will rise to $3,360.

Key legislative context:

• Kentucky met the fiscal “trigger” rules during FY 2024, and lawmakers passed House Bill 1 (2025) to lock in the 2026 cut.
• The trigger system traces back to House Bill 8 (2022), which set the conditions required before each further rate cut is allowed.

Why this matters for paychecks:

• Employers set payroll withholding based on the rate and deduction in effect for the year.
• A lower tax rate can mean slightly higher take-home pay in 2026, even before filing a return.

A simplified way to think about 2026:

• Flat rate: 3.5%
• Standard deduction: $3,360
• Basic formula: (Annual wages − 3,360) × 3.5%

The trigger system behind the cuts (and why 2025 did not change)

Kentucky’s tax cuts are conditional. Under the described rules, the state can cut the income tax rate by 0.5 percentage points per year only if both of these conditions are met:

1. The Budget Reserve Trust Fund (the rainy-day fund) is at least 10% of General Fund revenue at the end of the fiscal year.
2. General Fund revenue must have exceeded spending even if the income-tax rate had been 1 percentage point lower.

The source material says Kentucky missed the trigger for calendar year 2025, which is why the rate stayed at 4% for the 2025 tax year. However, strong revenue in FY 2024 produced a surplus of just over $2 billion and pushed the rainy-day fund above $5 billion, which allowed the 2026 cut.

The trigger structure is not just a technical budget test. For families deciding where to settle, it means future cuts are possible but not guaranteed; each cut still requires legislative approval.

Why this matters for immigrants picking a place to settle

Immigration status shapes where people can work, how quickly they can change jobs, and whether a spouse can work. Taxes do not decide visa approvals, but taxes can affect whether a family can afford child care, rent, or a first home.

Kentucky’s flat system can appeal to:

• International students staying after graduation and starting professional work
• Work visa holders whose pay rises quickly with experience
• New permanent residents who want a predictable state tax bill while paying federal taxes and sending money abroad

According to analysis by VisaVerge.com, tax predictability influences mobile workers since relocation decisions often happen fast when a job offer arrives. A flat rate and a single statewide standard deduction make it easier to estimate changes when you cross a state line.

Practical comparison: $50,000 in 2025 versus 2026

The source material gives a clear example for a single worker earning $50,000, using only the standard deduction.

Kentucky, 2025 (flat 4%; standard deduction $3,270)
– Taxable income: 50,000 − 3,270 = 46,730
– Tax owed: 46,730 × 0.04 = $1,869.20

Kentucky, 2026 (flat 3.5%; standard deduction $3,360)
– Taxable income: 50,000 − 3,360 = 46,640
– Tax owed: 46,640 × 0.035 ≈ $1,632.40

• Annual savings in this example: ≈ $236.80

For higher earners, the dollar savings will be larger because the lower rate applies to more taxable income.

Sales tax expansion: the trade-off that can hit daily budgets

Kentucky is not only cutting income taxes. The source material says the state is broadening the sales tax base by applying the 6% sales tax to more services that were previously untaxed.

Examples listed include:

• Personal fitness and training
• Marketing and website services
• Photography
• Telemarketing
• Courier and logistics services
• Various professional and business services

This shift can be easy to miss if you focus only on the income tax rate. A newcomer might see the 3.5% rate in 2026 and assume life is cheaper, but a wider sales tax can raise the price of services used monthly.

For immigrant families, examples of direct impacts include:

• Higher cost for a gym membership
• Increased charges for paid help with a small business website
• New taxes on certain professional services

Distribution of benefits: who saves most, and who may not feel it

Research from the Kentucky Center for Economic Policy (KCEP) estimates the three half-point income tax cuts (2023–2026) will cost the state about $2.15 billion per year once fully in effect.

Highlights from the analysis:

• The 2026 cut (4% → 3.5%) is expected to reduce annual revenue by roughly $718 million.
• About two-thirds of the total tax-cut dollars go to the wealthiest 20% of households.
• The richest 1% (incomes around $610,000+) receive about 29% of all income-tax-cut benefits.
• The lowest-income 60% receive only 19% of the total tax reduction.

KCEP notes many low-income Kentuckians already owe little or no income tax because of a low-income tax credit and exclusions for Social Security and the first $31,110 of retirement income. That means a rate cut may not help them much, while a broader sales tax can still raise their costs.

Paperwork reality: immigration address steps when you move

Tax changes are one part of a move. Many immigrants must also keep their address current with federal immigration agencies. If you move to Kentucky, you may need to file a change of address with U.S. Citizenship and Immigration Services, depending on your status and case.

USCIS provides the official Form AR-11 change-of-address process online through its Change of Address page and Form AR-11 filing options, which lays out who must report, deadlines, and how to submit updates.

That step does not change your Kentucky tax rate, but it can protect you from missed appointment notices, missed mail, and other problems that can derail a pending immigration case.

Long-term direction: “eventual elimination” and what families should watch

The source material says Kentucky leaders are pursuing a long-term goal of eventually eliminating the individual income tax, while relying more on consumption taxes like the sales tax. Critics warn the lost revenue could pressure funding for schools, healthcare, and local services.

For immigrant families, these debates are practical concerns:

• Schools matter when children are learning English and adapting to a new system.
• Clinics matter when a family is building employer-based health coverage.
• Local services matter for language help, job training, and community support.

Kentucky’s tax story for 2025 and 2026 is therefore not just a question of 4% vs. 3.5%. It is also about what the state taxes instead, how a wider 6% sales tax affects service prices, and how lawmakers balance future rate cuts against funding for public systems that help new residents get on their feet.