FRANKFORT, Kentucky – Kentucky is on track to meet the conditions to cut its income tax rate from 4% to 3.5%, effective January 2026.
After hours of debate, lawmakers passed House Bill 8 in 2022. The measure would have cut the state income tax by 0.5% annually, provided certain conditions are met, until it is repealed.
“It simply means the men and women of Kentucky can keep more of their hard-earned money,” said Elkton Republican Rep. Jason Petrie, chairman of the House Budget and Taxation Committee. “We have been willing to make difficult decisions when it comes to the budget and have placed an emphasis on meeting our needs rather than spending on wants. As a result, we continue to see our plan working. We are on track to eliminate the income tax in Kentucky, and we are doing it while funding the necessary programs that Kentuckians depend on.”
The law would reduce Kentucky’s income tax rate from 5% to 4.5% in 2023, before dropping another half a percentage point to 4% in 2024.
In 2025, however, the tax rate will remain at 4% after an August 2023 letter showed Kentucky did not meet the requirement that state revenues at the end of a fiscal year be equal to or greater than budget appropriations plus the cost of a 1% cut in the income tax rate. Majority Whip Jason Nemes (R-Louisville) said at the time that this was no surprise, given emergency spending such as flood recovery in Eastern Kentucky.
Senator Chris McDaniel (R-Ryland Heights) praised lawmakers’ commitment to fiscal responsibility ahead of the expected cut.
“Over the last decade, we have grown federal reserves from zero to over $5 billion,” McDaniel said in a statement. “At the same time, we have stabilized and restored solvency to the nation’s worst-funded pension systems, made historic investments in education, and reduced the income tax from 6% to 4%.”
“Kentuckians know best how to spend their money and do it more efficiently than the government. We are proud to help them and their families keep more of their hard-earned money.”
However, some Democrats said the law would shift the burden from top earners to ordinary Kentucky residents.
“What we’re seeing is basically a failure to invest in the services that Kentucky needs,” state Rep. Nima Kulkarni (D-Louisville) said in September 2023. “We’re talking about labor shortages. We need to be able to pay our teachers more. We need to be able to pay our first responders more, and we should expect more disasters.”
A House majority leader said lawmakers will continue to monitor the state’s revenues and spending as they prepare for the regular session in January 2025.
