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HEAD-TO-HEAD TAX COMPARISON · 2026

COUNTRY A Texas VS COUNTRY B Kentucky

Side-by-side analysis of income tax, effective rates, and take-home pay for Texas and Kentucky in 2026.

Daniel · CountryTaxCalc Updated August 2026 Tax Comparison 2026
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OVERVIEW
Texas and Kentucky both rank among the more tax-competitive US states, but they get there very differently. Texas has no state income tax at all — constitutionally prohibited since 1993 — while Kentucky charges a flat 3.5% on all income, cut from 4% in 2023 after a revenue-trigger clause in 2022's House Bill 8 was met. At $100,000 income, Texas residents keep $2,937/year more than Kentucky residents in state income tax alone, and the gap widens with income: $4,687/year at $150K, $8,187/year at $250K, and $16,937/year at $500K. Property tax tells a different story. Texas averages 1.6% of home value annually — among the highest in the nation — while Kentucky averages just 0.86%, roughly the national median. On a $300,000 home, that's about $4,800/year in Texas versus $2,580/year in Kentucky, a $2,220 swing that meaningfully offsets Texas's income-tax advantage for homeowners at typical Kentucky home prices. Kentucky also layers local occupational taxes on top of its state rate in cities like Louisville and Lexington (2.25%) and Covington (1%), which can push the effective income-tax cost above what the state rate alone suggests. Renters and high earners get the clearest benefit from Texas; Kentucky homeowners in affordable metros like Louisville ($280K median) may find the net gap smaller than the income-tax figure implies once housing costs and occupational taxes are factored in.
Section 01

The Big Picture

Top-line rates and effective take-home for a typical earner — including income tax, social contributions, and applicable surcharges.

⭐
COUNTRY A
Texas
TAX RATE
0%
No Income Tax
No state income tax — constitutionally prohibited since 1993
🐴
COUNTRY B
Kentucky
TAX RATE
3.5%
Flat Tax
Flat 3.5% (cut from 4% in 2023 after the HB 8 revenue trigger was met)
TYPICAL ANNUAL DIFFERENCE
Moving from Kentucky → Texas at $100,000
$2,937
That's TX saves $245/month back in your pocket
Section 02

Tax Savings by Income Level

Net take-home after all income tax, social contributions, and surcharges — for a single employee with no dependents.
GROSS INCOME
⭐ TX TAX
🐴 KY TAX
SAVINGS
10-YEAR
$50,000
$0
$1,187
TX saves $1,187
$11,870
$75,000
$0
$2,062
TX saves $2,062
$20,620
$100,000
$0
$2,937
TX saves $2,937
$29,370
$150,000
$0
$4,687
TX saves $4,687
$46,870
$250,000
$0
$8,187
TX saves $8,187
$81,870
$500,000
$0
$16,937
TX saves $16,937
$169,370
💡

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⭐

Texas Pros & Cons

+ PROS
  • 0% state income tax, constitutionally protected since 1993
  • Massive job markets in Austin (tech), Houston (energy), and Dallas (finance)
  • No state tax return to file — only federal
  • No local occupational or wage taxes layered on top of income
− CONS
  • Property tax averages 1.6% — among the highest in the US
  • A $300K home costs roughly $4,800/year in property tax alone
  • Extreme summer heat, 100°F+ for months across most of the state
  • Sales tax up to 8.25% combined state and local
🐴

Kentucky Pros & Cons

+ PROS
  • Property tax averages just 0.86%, roughly the national median
  • Affordable housing — Louisville median around $280,000, well below most Sun Belt metros
  • Social Security exempt after age 59; up to $31,110 of pension/401(k)/IRA income exempt for filers 65+
  • Flat 3.5% rate is simple and has already been cut once (from 4% in 2023)
− CONS
  • 3.5% flat tax costs $2,937/year more than Texas at $100K income
  • Louisville, Lexington, and Covington add local occupational taxes of 1-2.25% on top of the state rate
  • Job market is a fraction of Texas's major metros in size and pay
  • Smaller, slower-growing tech and finance sectors than Austin or Dallas
FAQ

Frequently Asked Questions

How much do I save moving from Kentucky to Texas?

At $100,000 income, Texas saves $2,937/year in state income tax alone, since Kentucky charges a flat 3.5% and Texas charges 0%. The gap grows with income: $4,687/year at $150K, $8,187/year at $250K, and $16,937/year at $500K. Kentucky's lower property tax (0.86% vs Texas's 1.6%) offsets some of that gap for homeowners.

Does Texas's high property tax cancel out its 0% income tax advantage over Kentucky?

Partially, but not for most earners. Texas averages 1.6% property tax versus Kentucky's 0.86% — on a $300,000 home, that's about $4,800/year in Texas vs $2,580/year in Kentucky, a $2,220 difference. At $100K income, Texas's $2,937 income-tax savings still comes out ahead by roughly $700/year, but the margin narrows considerably for owners of pricier Texas homes.

Why did Kentucky's income tax rate drop from 4% to 3.5%?

Kentucky's 2022 House Bill 8 replaced its old progressive 2-5% system with a flat tax and built in automatic rate cuts whenever state revenue growth hit a set benchmark. The rate started at 4% in 2023 and dropped to 3.5% once the trigger was met. Business groups continue pushing for further cuts toward 3%, while education advocates warn about school-funding impacts.

What are Kentucky's local occupational taxes, and do they apply everywhere?

No — only in specific cities. Louisville and Lexington levy a combined 2.25% local occupational tax on wages earned within city limits, and Covington levies 1%. Most of Kentucky has no local income tax at all. At $100K income working in Louisville, that's an extra $2,250/year on top of the $2,937 state tax, for $5,187 total — still less than many Northeastern states, but it changes the math versus Texas.

Does Kentucky tax Social Security or retirement income?

Kentucky exempts Social Security entirely for residents age 59 and older; those under 59 face partial taxation. Separately, filers 65+ can exclude up to $31,110 of pension, 401(k), and IRA income from state tax. Texas has no state income tax at all, so no retirement income of any kind is taxed there — a clear-cut advantage for high-income retirees.

Which state is better for homeowners, Texas or Kentucky?

It depends on home value. At $100K income with a $300,000 home, Texas's income-tax savings ($2,937) still edges out its extra property tax cost (~$2,220) versus Kentucky, netting roughly $700/year in Texas's favor. But as home value rises toward Texas's pricier metros (Austin, Dallas), Kentucky's much lower 0.86% property tax rate can close or reverse that gap for owners of $400K+ homes.

How does sales tax compare between Texas and Kentucky?

Texas charges 6.25% state sales tax plus up to 2% local, for a combined rate as high as 8.25% in many cities. Kentucky charges a flat 6% state sales tax with no local add-ons anywhere in the state, making it simpler and modestly cheaper for everyday spending on top of its lower property tax.

Should high earners choose Texas or Kentucky?

Texas wins clearly for high earners on pure tax math — at $500,000 income, Texas saves $16,937/year versus Kentucky's flat 3.5% rate, an amount that dwarfs Kentucky's property tax advantage for all but the largest homes. Kentucky becomes more competitive only for buyers of modest homes who also want a lower cost of living overall.
From the brief
NL27%new 2027 rate, down from 30%
DK65.4kkr/mo threshold, cut from 78k
MT1940snon-dom regime unchanged since
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