Go to Retiree Tax Map Kentucky Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line Most Tax-Friendly The Bluegrass State exempts Social Security benefits from state income taxes, plus up to $41,110 per person of a wide variety of retirement income, including public and private pensions and annuities. Personal income tax rates range from 2% to 6%. A 6% sales tax is imposed at the state level. Homeowners 65 and older qualify for a homestead provision that exempts part of the value of their property from state taxes. It's one of Kiplinger's top ten most tax-friendly states for retirees State Sales Tax State levy of 6%. Income Tax Range Low: 2% (on less than $3,000 of taxable income)High: 6% (on more than $75,000 of taxable income) Effective income tax rate: 5.3%/individual, 5.7%/joint Social Security Benefits are not taxed. Exemptions for Other Retirement Income Railroad Retirement benefits are exempt. Kentucky offers a retirement-income exclusion of up to $41,110, which includes distributions from IRAs and 401(k)s as well as private pensions and annuities. There is an additional exclusion for qualified military, civil-service, and state and local government pensions.IRAsQualifies for retirement-income exclusion of up to $41,110.401(k)s and Other Defined-Contribution Employer Retirement PlansQualifies for retirement-income exclusion of up to $41,110.Private PensionsQualifies for retirement-income exclusion of up to $41,110.Public PensionsQualifies for retirement-income exclusion of up to $41,110. Railroad retirement benefits are exempt. There is an additional exclusion for qualified military, civil-service, and state and local government pensions. Property Taxes Kentucky has a homestead exemption on the assessed value of a qualifying single-unit residential property, which is adjusted every two years according to the cost-of-living index. The median property tax on Kentucky's median home value of $123,800 is $1,054.Tax breaks for seniors: For homeowners 65 and older or totally disabled, $36,900 of the assessed value of their property is exempt from state taxes under the homestead provision for 2016. Vehicle Taxes A 6% tax is collected at registration. Additionally, the state vehicle property tax rate is $0.45 per $100 of car value; counties and other localities impose an additional levy. Inheritance and Estate Taxes Kentucky has an inheritance tax, but all Class A beneficiaries (spouse, parent, child, grandchild, brother and sister) are exempt. Other beneficiaries are subject to inheritance tax rates ranging from 4% to 16%. There is no estate tax.