2025 Tax Year

Kentucky Side Hustle Tax Calculator

Calculate your Kentucky state tax (4%), federal tax, and self-employment tax on 1099 income.

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2025 rates

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Last updated: January 2026 · Data from IRS Rev Proc 2024-40

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State

W-2 Income (from your day job)

Side Hustle Income *

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Kentucky side hustlers benefit from a competitive flat 4% state income tax rate. The Bluegrass State simplified its tax code in recent years, making it easier for freelancers to calculate their tax obligations. With Louisville and Lexington as major employment centers, Kentucky has a growing gig economy with over 400,000 residents earning self-employment income.

Kentucky Tax Guide

How Side Hustle Taxes Work in Kentucky

Kentucky uses a flat tax system:

**Kentucky state tax:** - Flat rate: 4% on all taxable income - No brackets—everyone pays the same percentage - Applies to net self-employment income after deductions

**Local taxes:** - Louisville has a 2.2% occupational license fee - Lexington has a 2.25% occupational license fee - These apply to net profits from self-employment - Other cities may have lower rates

**Combined rates in major cities:** - Louisville residents: ~6.2% (4% state + 2.2% local) - Lexington residents: ~6.25% (4% state + 2.25% local)

Example

What Kentucky Side Hustlers Owe

Let's say you're a single filer in Louisville with a $52,000 W-2 job and $14,000 in side hustle income from freelance consulting, with $2,000 in business expenses.

**Your estimated taxes on the side hustle:** - Net self-employment income: $12,000 - Federal SE tax (15.3% of 92.35%): ~$1,697 - Federal income tax on side income: ~$2,640 (22% bracket) - Kentucky state tax (4%): ~$480 - Louisville occupational tax (2.2%): ~$264 - **Total additional tax: ~$5,081**

Important Dates

Kentucky Tax Deadlines 2025

Kentucky estimated tax deadlines: - **Q1**: April 15, 2025 - **Q2**: June 16, 2025 - **Q3**: September 15, 2025 - **Q4**: January 15, 2026

Use Kentucky Form 740-ES for state estimated tax payments. Local taxes may require separate filings.

Save Money

Common Deductions for Kentucky Freelancers

Kentucky freelancers can reduce both state and local tax burdens through maximizing deductions. **Home office expenses**: Claim dedicated business space using simplified ($5/sq ft) or actual expense method—deductions reduce both state and local occupational taxes. **Business mileage**: 67 cents/mile for 2025; essential for rideshare drivers and those serving clients in Louisville, Lexington, or across the state. **Equipment and software**: Computers, cameras, tools, and business software are deductible. **Professional services**: Accounting, legal, and tax preparation fees are fully deductible. **Health insurance premiums**: Self-employed individuals can deduct 100% of health insurance costs. **Retirement contributions**: SEP-IRAs and Solo 401(k)s reduce federal AGI, which Kentucky uses as its starting point—saving you at federal rate plus 4% state plus local rates. **Marketing expenses**: Website costs, business cards, and promotional materials are deductible. Kentucky starts with federal AGI, so Schedule C deductions automatically reduce your state taxes. In Louisville, every dollar deducted saves you about 6.2% combined (4% state + 2.2% local).

Common Questions

Kentucky Side Hustle Tax FAQ

What is Kentucky's tax rate on side hustle income?

Kentucky has a flat 4% income tax rate on all taxable income. Louisville and Lexington add local occupational taxes of 2.2-2.25%.

Does Louisville tax freelance income?

Yes, Louisville has a 2.2% occupational license fee that applies to net profits from self-employment, in addition to the state 4% rate.

How does Kentucky compare to neighboring states?

Kentucky's 4% rate is lower than Ohio (3.125% + local), similar to Indiana (3.0% + county), and higher than Tennessee (0%).

Do I need to register my side hustle in Kentucky?

Sole proprietors using their legal name don't need state registration. If using a trade name (DBA), file with the Kentucky Secretary of State. LLCs must register with the Secretary of State. Sellers may need a Kentucky Sales Tax Permit.

How do I pay Louisville or Lexington occupational tax?

Louisville occupational tax is paid to Louisville Metro Revenue Commission. Lexington uses the Lexington-Fayette Urban County Government. Both apply to net self-employment profits for residents and those working within city limits. File quarterly or annually depending on your tax liability.

Do retirement contributions reduce local occupational taxes?

Yes, SEP-IRA and Solo 401(k) contributions reduce your federal AGI, which affects both Kentucky state tax and local occupational taxes. Every dollar contributed saves you at your federal rate plus 4% state plus your local rate (up to 2.25%).

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