Kentucky has one of the most complex local tax structures in the United States. Unlike most states where local income tax (if any) is levied by cities alone, Kentucky authorises both cities and counties to levy an occupational license fee — and the two can stack. In Louisville, for example, a resident's single 2.2% rate is made up of Louisville Metro, the transit authority and the school boards.
Despite being called a "fee," the occupational license tax is legally a tax on wages and net profits earned within the jurisdiction. As of January 2026, 87 of Kentucky's 120 counties levy the tax (Kentucky Association of Counties), as do roughly 170 cities that tax gross earnings (Kentucky League of Cities). The tax is collected entirely at the local level — the Kentucky Department of Revenue has no involvement in administration or collection.
This guide covers the major rate tables, how city and county taxes interact, the credit that prevents double taxation in larger counties, and where to file in each jurisdiction.
The key concept that confuses most Kentucky workers: cities, counties and school districts can each levy their own occupational tax, but they do not always apply to the same dollar.
If you work in Bowling Green (a city within Warren County), Warren County's own documents say the city tax and the county tax cannot both be charged on the same earnings. The county tax applies to work done outside the city limits instead. A school-district tax can still be added on top:
Kentucky law (KRS 68.197) provides a safeguard: in counties with a population of 30,000 or more, people who pay both a county fee and a city fee get a credit of the city fee against the county fee. This prevents double taxation of the same income in larger counties, but smaller counties, and counties that enacted their fee before reaching 30,000 residents, may not have to allow the credit.
Tax base: Both city and county taxes apply to compensation for work performed within that jurisdiction, regardless of where you live. Employers within the jurisdiction must withhold and remit. Self-employed individuals pay on net profits from business conducted in the jurisdiction.
No state involvement: Each Kentucky city and county that levies the tax operates its own occupational license office, issues its own forms, and sets its own deadlines. There is no unified state-level portal.
The table below covers the major Kentucky jurisdictions. Note that Louisville and Lexington have unified city-county governments (metro/urban county), so a single combined rate applies.
| Jurisdiction | Resident Rate | Non-Resident Rate | Notes |
|---|---|---|---|
| Louisville Metro / Jefferson County | 2.20% | 1.45% | Breakdown: 1.25% Metro Gov't + 0.2% TARC transit + 0.75% school board. Non-residents exempt from school board portion. |
| Lexington-Fayette Urban County | 2.25% | 2.25% | Unified city-county government. Same rate for residents and non-residents. |
| Covington | 2.45% | 2.45% | Wage base capped at $184,500 (2026 Social Security wage base). Max annual tax: $4,520.25. |
| Florence (Boone County) | 2.00% | 2.00% | Wage base capped at $184,500. Max: $3,690.00. |
| Frankfort (Franklin County) | 1.95% | 1.95% | Applies to both residents and non-residents at duty station. |
| Bowling Green (city) | 2.00% | 2.00% | Applies to work done inside the city limits. |
| Warren County | 1.00% | 1.00% | Applies to work outside Bowling Green city limits; not charged on the same earnings as the city tax. Warren County Schools adds 0.5% for district residents. |
| Richmond | 2.00% | 2.00% | Madison County also levies separately. |
| Owensboro | 1.78% | 1.78% | |
| Paducah | 2.00% | 2.00% | Voluntary withholding — employer not required to withhold. |
| Most smaller counties | 0.50%–1.50% | 0.50%–1.50% | Rate varies. Check Kentucky Secretary of State occupational tax database. |
The median county rate is approximately 1.00% (Kentucky Association of Counties, January 2026). Among the jurisdictions in this table, Covington's 2.45% is the highest rate for earners under its wage cap, followed by Lexington (2.25%) and Louisville (2.2% for residents).
Because each jurisdiction administers its own tax, the filing process differs by city and county. Here are the two largest:
For all other Kentucky cities and counties, the Kentucky Secretary of State's Occupational Tax database (web.sos.ky.gov/occupationaltax/) lists tax districts and their filing forms. KRS 67.766 requires tax districts that levy net-profits or gross-receipts taxes to provide their forms and ordinances to the Secretary of State — the database hosts the filing forms and ordinances districts have provided.
Kentucky's local taxes sit on top of the state income tax. As of 2026, Kentucky's flat state income tax is 3.5% (down from 4.0% in 2024 and 2025, and 4.5% in 2023, under House Bill 1 of 2025).
Combined effective rates for a Louisville worker: 3.5% state + 2.2% Louisville Metro = 5.7% combined before federal. This is well below California's top rate of 13.3% and New York City's top combined state-plus-city rate of about 14.8%, so Kentucky's overall burden is competitive despite the local layer.
There is no Kentucky sales tax on groceries and no statewide inheritance tax for direct descendants. The total tax burden calculation often compares favourably to neighbouring Tennessee (0% income tax but high sales tax) and Indiana.
Remote work adds complexity. The occupational license tax applies to income earned within the jurisdiction. If you live outside Louisville but your employer is based in Louisville and you work remotely from home, whether Louisville Metro can tax your wages depends on interpretation of "where the work is performed."
Louisville Metro's withholding instructions say employers must withhold on compensation "earned by employees for work performed within" Louisville Metro, so the tax follows where the work is performed rather than where the employer is based. This is different from New York's "convenience of the employer" rule. Rules differ by jurisdiction, so confirm with each one.
Employees splitting time between a Louisville office and a home outside Louisville should keep a record of days worked in each location. If an employer withheld Louisville tax on pay for work done outside Jefferson County, Louisville Metro's Form W-1REE is the employee refund route.
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