Gambling winnings tax in Kentucky

Kentucky allows gambling losses only as an itemized deduction on the state return, whether or not you itemize federally. Take its standard deduction and it taxes your gross winnings. Only 90 percent of your losses count from 2026, so a losing year can still leave part of your winnings taxed.

Checked against Kentucky’s own sources on 2026-09-25.

In short

A win can take away Kentucky’s family size tax credit, even when your losses offset the win. The credit is based on income that counts your winnings before any itemized losses.11, 10
Kentucky’s rate falls from 4.0 percent in 2025 to 3.5 percent in 2026.2

How Kentucky treats gambling losses

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Kentucky does not tie the deduction to your federal itemizing choice. You can itemize on the Kentucky return even if you take the federal standard deduction, but the losses count only if you do, in place of Kentucky's standard deduction.

The two examples below are the same numbers the calculator uses, worked at Kentucky rates.

Two examples, worked at 2026 Kentucky rates

A single filer with $60,000 of other income who takes the standard deduction on everything except gambling losses.

A losing year

You win $50,000 and lose $52,000, so you finish down $2,000.

Federal: $3,596
Kentucky: $230
Total: $3,826

You finished the year down and still owe tax.

Federally you itemize, so your losses offset your winnings, but the 2026 rule caps that deduction at 90 percent and leaves $3,200 taxable. Kentucky lets you deduct gambling losses as an itemized deduction on the state return, whether or not you itemize federally. Your Kentucky income, after the larger of the standard deduction and your itemized deductions, goes from $56,640 without the win to $63,200 with it. The extra $6,560 is taxed at 3.5 percent, which comes to $230.

A winning year

You win $50,000 and lose $10,000, so you finish up $40,000.

Federal: $10,350
Kentucky: $1,553
Total: $11,903

Federally you take the $16,100 standard deduction, which is worth more than itemizing, so your gambling losses do not reduce your federal tax at all. Kentucky lets you deduct gambling losses as an itemized deduction on the state return, whether or not you itemize federally. Your Kentucky income, after the larger of the standard deduction and your itemized deductions, goes from $56,640 without the win to $101,000 with it. The extra $44,360 is taxed at 3.5 percent, which comes to $1,553.

Kentucky income tax rates, 2026

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Taxable income	Rate
$0 and above	3.5 percent

The calculator also applies what this table leaves out: a family size tax credit that takes a share off the tax and shrinks as income rises.

Withholding on winnings

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Kentucky withholds 3.5 percent. The payout that triggers it depends on the wager, and the lowest trigger is $5,000. The rules in the state's sources:

the state lottery and other lotteries, sweepstakes and wagering pools: above $5,000, measured after the stake comes off (Kentucky states no figure of its own and withholds where federal withholding under 26 U.S.C. 3402(q) applies).
pari-mutuel wagering, other wagers and sports wagering: above $5,000, and only where the payout is at least 300 times the stake, measured after the stake comes off.
slot machines, keno and bingo: nothing is withheld, at any amount.

These sources give no rule for other kinds of bet, so do not assume tax was withheld on one.

Withholding is a credit against the bill, not the bill itself. It does not settle what you owe.

Local tax

Local occupational license fees are very unlikely to reach a casual gambler, because they tax compensation for services and business net profits rather than winnings. KRS 68.180 sets that base for counties above 300,000 population. No single Kentucky source sets the base for every city and county, so treat this as the pattern rather than a rule confirmed everywhere.

The federal 90 percent loss limit in Kentucky

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From tax year 2026 the federal deduction for gambling losses is cut to 90 percent of what you lost, and never more than what you won. Public Law 119-21 did it, at section 70114(a), by rewriting 26 U.S.C. 165(d).

Kentucky applies the federal 90 percent limit, so the deduction on your state return is cut the same way.

Kentucky follows the federal code as it stood on 2025-12-31. The paragraph above says what this means for the federal 90 percent limit.

More about Kentucky

The family size tax credit

Kentucky’s family size tax credit, KRS 141.066(3), takes off a share of your tax. That share falls from 100 percent to nothing between 100 and 133 percent of the federal poverty guideline for your family. Modified gross income starts from your federal adjusted gross income, which counts your winnings before any itemized losses. So a win can take the credit away even when your losses offset it.11, 10

The tax rate

Kentucky’s rate falls from 4.0 percent in 2025 to 3.5 percent in 2026.2

If you itemize

Kentucky has its own Schedule A, with line 12 for gambling losses.6

Kentucky has not published its 2026 Schedule A yet.

The sports wagering tax

Kentucky’s sports wagering tax of 9.75 percent retail and 14.25 percent online is a tax on the operator’s revenue. It is not a tax on you.13

If you gamble as a business

In a county of 300,000 people or more, the county can charge a license fee of up to 1.25 percent on business net profits. If you file Schedule C there as a professional gambler, it can apply to you. That is a different case from a casual gambler.9

About this estimate

If you are 65 or older, the calculator takes Kentucky’s $40 credit off the tax for each person 65 or older, before the family size credit.

Sources

Every figure above traces to a primary source: a statute, an administrative code, a state agency page, or official form instructions.

1. KRS 141.020(3)(a)4: an additional $40 credit if the taxpayer has attained 65 before the close of the taxable year (checked 2026-10-12)
2. KRS 141.020, imposition and rate, 4 percent for 2025 and 3.5 percent for 2026 (checked 2026-09-11)
3. 103 KAR 18:070, withholding on gambling winnings subject to 26 U.S.C. 3402(q) at the maximum rate in KRS 141.020 (checked 2026-10-11)
4. KRS 141.019(2), wagering losses carved out of the IRC 165 disallowance (checked 2026-09-11)
5. KRS 141.010(21), Internal Revenue Code in effect December 31, 2025 (checked 2026-09-11)
6. Form 740 Schedule A (2025), gambling losses on line 12 (checked 2026-09-11)
7. Kentucky 2026 withholding formula, 3.5 percent and a $3,360 standard deduction (checked 2026-09-25)
8. 2025 Form 740 instructions: itemizing on the Kentucky return without itemizing federally, one standard deduction on a joint return and two on a combined return (checked 2026-09-25)
9. KRS 68.180, occupational license fee base in counties of 300,000 population or more (checked 2026-09-11)
10. 2025 Schedule ITC, family size tax credit table and modified gross income (checked 2026-09-25)
11. KRS 141.066, family size tax credit from 100 to 133 percent of the poverty guideline available on June 30 of the tax year (checked 2026-09-25)
12. HHS annual update of the poverty guidelines, 91 FR 1797, January 15, 2026: $15,960 for one person and $21,640 for two (checked 2026-09-25)
13. Kentucky DOR, sports wagering excise tax: 9.75 percent at the track and 14.25 percent online, on the licensee (checked 2026-10-06)

The federal rule, for the parts of this page that rest on it

14. Public Law 119-21 section 70114(a), which rewrote 26 U.S.C. 165(d) on wagering losses from tax year 2026 and sets out its text (checked 2026-10-18)
15. 26 U.S.C. 3402(q)(3)(A), withholding on wagering proceeds, and 26 U.S.C. 3402(q)(5), which exempts slot machines, keno and bingo, 2024 edition of the US Code (checked 2026-10-18)

We could not confirm these from an official source: how the state treats a non-resident.