Kentucky Lawmakers Approve Income Tax Reduction

Kentucky is poised to reduce its individual income tax rate from 4% to 3.5% in January 2026, following the state budget meeting the fiscal conditions required for such a cut. The anticipated reduction stems from House Bill 8, passed in 2022, which allows for gradual income tax cuts contingent on specific budgetary thresholds. State Budget Director John Hicks confirmed that the necessary fiscal triggers were met, indicating a general fund surplus and a reserve trust fund exceeding $5 billion. While Republican lawmakers, led by Sen. Chris McDaniel, celebrated this progress, concerns remain regarding the sustainability of further cuts, with some leadership suggesting a reevaluation of tax structures may be necessary beyond a 3% rate. This income tax reduction could amount to approximately $600 million in savings for Kentucky taxpayers and aligns with pro-growth tax reform initiatives supported by the Kentucky Chamber of Commerce. The General Assembly will need to formally approve the tax cut in the upcoming 2025 session to implement the change.