Kentucky has met financial requirements to allow another income tax cut

Kentucky has met the financial conditions needed to set in motion another cut in the state’s personal income tax rate that could take effect in 2026, top Republican lawmakers said Wednesday.

State budget officials confirmed the financial triggers were satisfied, clearing the way for lawmakers to reduce the individual income tax rate to 3.5% from 4%, effective in January 2026, said Sen. Chris McDaniel. The GOP-dominated legislature can pass the rate cut when it reconvenes next year.

It’s a reversal from a year ago, when the Bluegrass State failed to fully meet the financial conditions, meaning the income tax rate will hold steady at 4% this coming January.

Since Republican lawmakers passed a tax overhaul in 2022, the personal income tax has gradually been reduced by increments of a half-percentage point, conditioned on meeting benchmarks that ensure revenues are sufficient to meet state spending needs.

For many supporters of that landmark legislation, the goal has been to eventually phase out individual income taxes in Kentucky, shifting tax collections toward personal consumption and away from personal income. That 2022 measure also extended the state sales tax to more services.

Kentucky lawmakers have been able to reduce the individual income tax while also shoring up public pension systems and making important investments in education.

The latest income tax rate cut is expected to draw strong support from the GOP. But in future years, an internal debate among Republican lawmakers could emerge on how low the income tax rate can go without perhaps necessitating changes in other taxes to meet state spending needs.

Critics of the income tax phase-out have warned it eventually will deprive essential state services of sufficient revenue. But when the state failed to meet the trigger conditions a year ago, pausing the income tax cuts, proponents said it showed the process was working as intended to protect necessary government services.

Gov. Andy Beshear said in a social media post that the prospect of another individual income tax rate cut in 2026 was more good news for the state. 



(AP file photo)