Kentucky Tax Changes 2026: A CPA Guide | HelloBooks Kentucky: 4% for 2025, 3.5% for 2026, Code date of December 31, 2024, and no state deduction for tips, overtime or car loan interest. What CPAs should know.
Kentucky’s Code date sits before the 2025 federal law, and the Department says so plainly in the 740 instructions. The rate falls again in 2026.
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Flat rate, 2026
3.5%
Applies: Tax years 2025 and 2026From IRS.gov · checked October 10, 2026
HB 775 moved the Kentucky IRC reference date from December 31, 2023 to December 31, 2024. The 2025 instructions say recent federal changes do not apply to Kentucky returns, and that qualified tips, overtime income and car loan interest are not deductible on the Kentucky return.
Section 179 for property placed in service on or after January 1, 2020 is still computed under the rules in effect on December 31, 2003.
The rate is 4% for 2025 with a $3,270 standard deduction. The 2026 withholding formula uses 3.5% and a $3,360 standard deduction.
With Section 179 frozen at 2003 rules, Kentucky asset schedules drift further from federal every year. Track each asset’s cost and in-service date in HelloBooks once and let both schedules draw on it. Kentucky sales tax is at /us/sales-tax/kentucky.
General information for tax professionals, not advice on a specific return. Figures are from IRS.gov on the date shown; check the current IRS instructions before filing.
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