Kentucky Income Tax Filing: Form 740, Local Tax and Reciprocity

Updated October 23, 2026

One rate, and the breaks Kentucky gives

Kentucky charges one flat rate on taxable income. The Department of Revenue sets a standard deduction each year, and the rate and deduction are printed in the instructions for your tax year.

• Social Security. The instructions say Social Security benefits are not taxable for Kentucky.
• Pensions. Kentucky lets each taxpayer exclude pension income up to a set dollar limit. Retirees with federal, state or local government pensions above the limit may need Schedule P.
• Military pay. All pay received by active duty members, reserve members and the National Guard is exempt, and Kentucky tax should not be withheld from it. If it was withheld in error, the Department refunds it.
• Family Size Tax Credit. Lower-income filers can get a credit tied to the federal poverty level and family size.

Kentucky also picks its own date for following federal tax law. The 2025 instructions said qualified tips, overtime income and car loan interest were not deductible on the Kentucky return. The Department may update that, so read the current instructions. Our tips deduction guide covers the federal side.

Form 740 or Form 740-NP, and how to file

Residents who lived in Kentucky all year use Form 740. Nonresidents and part-year residents use Form 740-NP. Nonresidents who qualify for reciprocity and have no other Kentucky income use Form 740-NPR.

You can e-file. A tax professional can send your federal and state returns together. You can also file online from home, or use the Department's free options. KY File is the state's free electronic version of the paper form. It checks your math but does not explain tax situations, so finish your federal return first.

Check your refund at refund.ky.gov. The Department says status for an e-filed return should show within 72 hours. A paper return takes about 12 weeks.

The return is due April 15. If you have a federal extension, you do not need a separate Kentucky one. Enclose a copy of the federal extension application, or the e-file acknowledgment. Otherwise file Form 740EXT and state a reason you cannot file on time. Being unable to pay is not an accepted reason. Extensions stop at six months, and interest runs from the original due date.

Reciprocity and who counts as a resident

Kentucky has reciprocity agreements with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin. Only Missouri and Tennessee, among Kentucky's seven neighbors, are missing. Under these deals you are taxed by the state where you live, not where you work. The covered income is mostly wages and salaries. Gambling winnings and Schedule K-1 income are fully taxable in Kentucky.

• File Form 42A809, Certificate of Nonresidence, with your employer to stop Kentucky withholding.
• File Form 740-NPR if Kentucky tax was withheld and you had no other Kentucky income.
• Kentucky gives no credit for tax paid to a reciprocal state on this income. Ask that state for the refund.

Living in Kentucky more than 183 days in the year makes you a resident, even if your permanent home is elsewhere. Reciprocity then does not apply. Such people use Form 740-NP.

Military families and local taxes

If your legal home with the military is Kentucky, you stay a Kentucky resident wherever you are stationed. Nonresident service members with civilian jobs in Kentucky report that income on Form 740-NP, unless they live in a reciprocal state.

A military spouse's nonmilitary income is not taxable to Kentucky if the service member is here on orders, the spouse is here only to be with them, and both claim the same other state as home. If an employer still withheld Kentucky tax, file Form 740-NP and check the Military Spouse box. File a new Form K-4 with your employer to stop future withholding.

Local taxes work apart from the state return. The Department's instructions mention local government occupational, license and income taxes, and tell you not to count them as state withholding. Ask your employer which local taxes it takes, and look at your city or county for its own rules.

Moving to or from Florida

If you keep a permanent home in Kentucky all year, you are a full-year resident and use Form 740. If you set up or give up Kentucky residency during the year, you are a part-year resident and use Form 740-NP.

• When you move out, report all income you earned while a resident, plus Kentucky-source income after you leave.
• When you move in, report Kentucky-source income from before you arrived, plus everything you earned after.

Retirement income gets its own care. The instructions ask part-year residents to track pension and IRA amounts received while living in Kentucky, because the pension exclusion applies to that part. Read our moving to Florida tax page for the Florida side.

Papers and payments people forget

• Schedule KW-2. Kentucky no longer wants your W-2s and 1099s sent in. It wants Schedule KW-2 instead. Without it, you get no credit for Kentucky tax withheld. Keep the originals in case the Department asks.
• A copy of your federal return. Form 740-NP filers must enclose one, marked as a copy.
• Use tax. The return has a line for out-of-state purchases where no sales tax was charged.
• Estimated tax. Use Form 740-ES if you expect income with no Kentucky tax withheld above a set amount. You can pay online or by mail. The form instructions explain how much you must prepay to avoid a penalty.

Mistakes that cause delays or letters

• Putting local tax on the state withholding line. The instructions say not to.
• Skipping Schedule KW-2. That means no credit for withholding.
• Taxing Social Security. Kentucky does not.
• Asking Kentucky for a reciprocal-state refund. Go to the state that withheld.
• Amending without an explanation. The Department says missing detail can delay processing.
• Forgetting to update your address after you move.

See our extension guide and tax deadlines page for federal dates.

Filing from Kentucky with Zero Fuss Taxes

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FAQ

Nearby state guides

Sources

• revenue.ky.gov/Forms/740-NP%20Packet%20Instructions%20(2025).pdf
• revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx
• irs.gov/filing/individuals/when-to-file
• irs.gov/businesses/small-businesses-self-employed/estimated-taxes

General information, not tax advice for your specific situation. Rules can change, so check the official sources below. Zero Fuss Taxes is a PTIN-holding tax preparation firm. We are not a CPA firm, enrolled agents or attorneys.