Kentucky House Bill 8, enacted in 2022, is gradually replacing the state’s individual income tax with a broader sales tax and new vehicle fees. For 2026, the individual income tax rate is 3.5%, down from a flat 5% before the law took effect.1Kentucky Legislative Research Commission. Kentucky Code 141.020 – Levy of Income Tax on Individuals The 6% sales tax now applies to more than 30 service categories that used to be tax-free, and electric and hybrid vehicle owners pay annual ownership fees plus a per-kilowatt-hour excise tax on public charging.
Income Tax Rate for 2026
HB 8 set a phased schedule cutting the flat income tax rate by half a percentage point at a time:
- 2023: 4.5%
- 2024–2025: 4%
- 2026: 3.5%
Employers apply the current rate through payroll withholding, so most workers see the change without filing anything extra.2Kentucky Department of Revenue. 2026 Kentucky Withholding Tax Formula A household with $80,000 in taxable income saves $400 a year at 3.5% compared with the old 5% rate.
The rate was scheduled to drop to 3% for 2027, but Kentucky missed the required budget benchmarks by roughly $7.5 million. The 3.5% rate stays in place, and the next possible cut depends on how the state performs in the following fiscal year.
When the Rate Can Drop Again
Further reductions are not automatic. KRS 141.020 ties any additional half-point cut to two conditions that both have to be met in the same year:1Kentucky Legislative Research Commission. Kentucky Code 141.020 – Levy of Income Tax on Individuals
- The Budget Reserve Trust Fund balance must equal at least 10% of the prior year’s General Fund revenue.
- General Fund revenue must have exceeded appropriations by an amount equivalent to a full one percentage point cut in the income tax rate.
The second test is the harder one. The state has to show it could have absorbed a full point of lost revenue and still funded everything it spent. That is what fell short for the 2027 evaluation. Each successful trigger only moves the rate down half a point, so reaching zero from 3.5% would take seven more consecutive triggers, none of them guaranteed.
Services Now Subject to 6% Sales Tax
To offset the income tax cuts, HB 8 extended Kentucky’s 6% sales and use tax to more than 30 service categories.3Kentucky Department of Revenue. Recent Changes to Sales Tax and Excise Taxes The categories most households and small businesses run into include:4FindLaw. Kentucky Revised Statutes 139.200 – Imposition of Sales Tax
- Landscaping and lawn care, including mowing, tree trimming, and snow removal
- Residential and commercial cleaning, including carpet and window cleaning
- Pet grooming, boarding, sitting, and obedience training
- Small animal veterinary services (livestock and equine care are excluded)
- Non-coin-operated laundry, dry cleaning, and linen and uniform supply
- Indoor tanning
- Photography and photo finishing
- Cosmetic surgery that is not medically necessary (reconstructive surgery for birth defects, trauma, burns, or disease is excluded)
- Gym memberships and personal training
- Massage services
- Parking services
- Testing services
- Executive recruitment
- Lobbying
- Telemarketing, including text-message solicitation
- Extended warranty and software support contracts
If you pay someone to mow the lawn, clean the house, board the dog, or shoot family photos, expect 6% on top of the price. Businesses in these categories need a Kentucky sales tax permit, collect the tax at the point of sale, and remit it to the Department of Revenue.
Fees on Electric and Hybrid Vehicles
Because electric and plug-in hybrid drivers do not pay motor fuel tax at the pump, HB 8 created annual ownership fees under KRS 138.475: $120 for electric vehicles and $60 for electric motorcycles.5Kentucky Legislative Research Commission. Kentucky Code 138.475 – Ownership Fees for Electric Vehicles The statute defines electric vehicle broadly to cover anything with plug-in charging capability, including plug-in hybrids.
The Department of Revenue adjusts the fees each year using the National Highway Construction Cost Index, and the amounts can never drop below the original floors. By 2025, the adjusted fees were $126 for electric vehicles and $63 for electric motorcycles.6Alternative Fuels Data Center. Electric Vehicle (EV) Fee You pay at initial registration and again at each renewal through your county clerk.7DRIVE. Electric and Hybrid Vehicle Fee
Excise Tax on EV Charging
HB 8 also created an excise tax on electricity sold at EV charging stations installed on or after July 1, 2022. The starting rate was three cents per kilowatt-hour and adjusts annually; as of January 2025 it is 3.2 cents per kilowatt-hour.8Kentucky Department of Revenue. Electric Vehicle Power Excise Tax Stations on state property carry an additional 3.2-cent surtax, doubling the effective rate. Charging station operators collect and remit the tax, and it is built into the price shown at the station.
Penalties for Late Sales Tax Filing or Payment
Many service providers newly covered by HB 8 are collecting sales tax for the first time. Kentucky’s penalties apply uniformly:9Kentucky Department of Revenue. Penalties, Interest and Fees
- Late filing: 2% of tax due per 30-day period (or fraction), capped at 20%, minimum $10.
- Late payment or failure to collect: same 2% per 30-day period, 20% cap, $10 minimum.
- Interest: 9% for 2026, running from the original due date on any unpaid balance.
A business that collects tax from customers and holds the money for six months can hit the full 20% penalty plus interest on top of the original amount owed. If you are now subject to sales tax collection under HB 8, register for a permit and set up a remittance schedule before you start charging customers.
Protesting a Kentucky Tax Assessment
If you get a Notice of Tax Due you believe is wrong, you have 60 days from the date on the notice to file a written protest with the Department of Revenue. The deadline is absolute. Miss it and the assessment becomes final and collectible, and you lose the right to protest.10Kentucky Department of Revenue. Protest Procedures
The written protest must identify the tax type, the affected periods, the notice number, and your account or Social Security number, and it must include a statement of why you disagree along with supporting documents. If you need more time to gather evidence, you can request an extension, but the request itself has to be filed within the original 60 days.
Once the protest is on file, you have the right to a conference with the Department, in person or through an authorized representative. If the dispute is not resolved, either side can request a final ruling, which closes internal review and opens the door to an appeal before the Kentucky Claims Commission. Real property assessments follow a different track through the Office of Property Valuation.