Kentucky tips tax calculator: not deductible in Kentucky

Kentucky’s 2025 Form 740 instructions put it bluntly: “qualified tips, overtime income, and car loan interest are not deductible on the Kentucky return.”

Your Kentucky tips

State where you work Qualified tips this year

Voluntary cash and card tips on your W-2, 1099 or Form 4137 — not service charges.

Tax year

2025202620272028

Filing status Other income in your AGI

Wages without the tips, plus any other income (both spouses if filing jointly).

Your occupation The 71 Treasury Tipped Occupation Codes in the final rule (TD 10044).

How you are paid

Employee (W-2) Self-employed (1099)

More options

Itemized deductions (if larger than the standard deduction)

State marginal rate override (%) Leave blank to use the state’s published rate for your bracket.

Federal income tax saved in 2026Deduction $18,000 at 12% $2,160

$18,000 of the $25,000 cap used (72%)

Qualified tips	$18,000
After the $25,000 cap	$18,000
Income phase-out (MAGI $48,000)	$0
Tips deduction	$18,000
Federal tax before → after	$3,580 → $1,420
Social Security & Medicare still due on tips	$1,377
Kentucky 2026: Tips stay taxable in this state	$0
Total income tax saved	$2,160

What the estimate leaves out

Why: a fixed conformity date

Kentucky follows the Internal Revenue Code as of a fixed date set in KRS 141.010, and the federal tips deduction was enacted after it. The Department lists qualified tips among items that may be deductible federally but are nondeductible for Kentucky, and we found no 2026 legislation changing that. Kentucky’s 2026 standard deduction is $3,360, an increase of $90. The same comparison table marks overtime income as nondeductible, so a worker who claims both federal deductions reverses both on the Kentucky return, and car-loan interest is treated the same way.

Kentucky figures

Cash wage / minimum	$2.13 / $7.25
In force	July 1, 2026
Next change	none scheduled
Tipped threshold	More than $30 a month in tips
Tips on the 2025 return	tips stay taxable in this state. Form 740 instructions: “qualified tips, overtime income, and car loan interest are not deductible on the Kentucky return.” Source: Kentucky Department of Revenue
Tips on the 2026 return	tips stay taxable in this state. No Kentucky tips deduction had been enacted when we checked. Source: Kentucky Department of Revenue

Tipped wage

Kentucky uses the federal $2.13 cash wage and $5.12 tip credit for employees receiving more than $30 a month in tips.

A Louisville bartender

A $20,000 federal deduction saves $2,310; Kentucky taxes the same $20,000. In a 30-hour week, $2.13 an hour plus $160 of tips leaves $0 of make-up for the employer.

Check a Kentucky workweek

Employer make-up owed$2.13 cash wage + tips must reach $7.25 an hour. $14

Minimum for the hours	$232
Cash wage paid	$68
Tips counted toward the minimum	$150
Your effective hourly pay	$7.25

How the make-up rule works

Where these figures come from

Kentucky Department of Revenue · Kentucky Labor Cabinet
2025 Kentucky Form 740 instructions (2025)
Minimum Wages for Tipped Employees (table by state) (2026-07-01)

Federal rules: how the deduction works. Nearby: Indiana, Ohio, West Virginia, Virginia, Tennessee, Missouri, Illinois.

Figures verified against primary sources on October 5, 2026