Medical expenses can be a significant burden for many households, especially for those with chronic conditions, disabilities, or high out-of-pocket healthcare costs. While the federal tax code allows taxpayers to deduct certain unreimbursed medical and dental expenses that exceed 7.5% of their adjusted gross income (AGI), many states handle things differently. In the case of Kentucky, the state does not allow a deduction for medical expenses on individual income tax returns. This blog provides a detailed explanation of why Kentucky excludes this deduction and how it affects your tax strategy as a resident.
🏛️ Overview of Kentucky’s Tax Structure
Kentucky imposes a flat income tax rate on individuals. As of 2025, the rate is 4.0%. While Kentucky previously conformed more closely to federal itemized deduction rules, recent tax reforms have changed the structure of deductions significantly. These changes have streamlined the filing process for taxpayers but have also eliminated several deductions that were once permitted—including medical expense deductions.
Instead of offering a wide range of itemized deductions like the IRS, Kentucky now provides a limited set of allowable deductions and credits, which excludes medical expenses.
📜 Kentucky’s Break from Federal Itemized Deductions
Before the tax reforms of 2018 and subsequent legislation, Kentucky taxpayers could itemize deductions on their state return using a system similar to the federal Schedule A. However, with House Bill 487, the state decoupled from several federal tax provisions and narrowed the list of itemized deductions available to state filers.
As a result, deductions for unreimbursed medical expenses were officially removed from the list of allowable state deductions starting in tax year 2018 and remain disallowed through 2025. This shift was part of a broader effort to simplify the state’s tax system and lower tax rates overall.
❌ What’s Not Deductible in Kentucky
The following types of deductions are not allowed on Kentucky individual income tax returns:
- Medical and dental expenses
- State and local income taxes paid
- Real estate taxes on personal residences
- Personal casualty and theft losses
- Miscellaneous itemized deductions such as unreimbursed employee expenses
This means that even if you qualify for a deduction on your federal tax return, you cannot claim the same expenses on your Kentucky return.
✅ What Kentucky Still Allows
Although Kentucky has eliminated many itemized deductions, it still permits a few select deductions and credits, including:
- Standard deduction (adjusted annually for inflation)
- Pension income exclusion (up to a certain limit)
- Tuition tax credit
- Child and dependent care credit (based on federal eligibility)
- Education savings plan (KY 529) deduction
Unfortunately, medical expenses do not fall under any of these permitted categories, meaning they must be excluded from your Kentucky tax planning calculations.
💡 Why Did Kentucky Eliminate the Medical Deduction?
Kentucky’s move to eliminate the deduction for medical expenses was part of a broader tax modernization strategy. The goals of this reform were to:
- Lower the individual income tax rate across the board
- Reduce reliance on income taxes by expanding the sales tax base
- Simplify the tax code by eliminating complex itemization rules
- Create a more competitive economic environment to attract businesses and workers
While the reforms may benefit some taxpayers, particularly those with lower itemizable expenses, they can disadvantage individuals with high medical costs who previously benefited from the deduction.
📑 What Kentucky Residents Should Do Instead
Though you can’t deduct medical expenses on your Kentucky return, you should still keep accurate records for your federal return. Many taxpayers—especially retirees, people with chronic illnesses, or those who undergo major surgeries—may qualify for federal medical deductions if their expenses exceed 7.5% of AGI.
In addition, consider using tax-advantaged health accounts such as:
- Health Savings Accounts (HSAs): Contributions are deductible at the federal level and distributions are tax-free when used for qualified medical expenses.
- Flexible Spending Accounts (FSAs): Funded with pre-tax dollars and used to cover a variety of medical costs.
- Health Reimbursement Arrangements (HRAs): Employer-funded plans that reimburse employees for medical expenses.
📊 Federal vs. Kentucky: Medical Expense Deduction Comparison
| Category | Federal (IRS) | Kentucky (State) |
|---|---|---|
| Medical Deduction Allowed? | Yes, if exceeds 7.5% of AGI | No |
| Itemized Deductions | Yes, full Schedule A | Limited (e.g., standard deduction, retirement exclusion) |
| HSA Contributions Deductible? | Yes | Yes (to match federal rules) |
| Standard Deduction | $14,600 (single, 2025) | $2,980 (2025, subject to annual change) |
🧠 Final Thoughts
Kentucky’s decision to eliminate the medical expense deduction reflects its effort to simplify and modernize its tax system. While this change benefits taxpayers who prefer lower rates and simpler filings, it poses a challenge to those with high medical costs.
If you are a Kentucky resident facing substantial out-of-pocket healthcare expenses, your primary opportunity for tax relief is through the federal medical deduction. Therefore, continue to track your expenses carefully, maintain thorough documentation, and consult with a tax professional to evaluate whether itemizing your deductions on your federal return is worthwhile.
Understanding Kentucky’s tax framework ensures you don’t waste time gathering documents that won’t impact your state return—and allows you to focus on strategies that still offer real savings at the federal level.
