FRANKFORT, Kentucky — Kentucky has met the financial requirements to trigger a new state income tax cut that could take effect in 2026, top Republican lawmakers said Wednesday.
State budget officials confirmed that financial triggers had been met, clearing the way for lawmakers to cut the individual income tax rate from 4% to 3.5%, effective January 2026, Sen. Chris McDaniel said. The GOP-dominated Legislature could approve the rate cut when it reconvenes next year.
“Kentuckians know best how to spend their money and do it more efficiently than the government,” McDaniel, chairman of the Senate Appropriations and Revenue Committee, said in a statement. “We are proud to help them and their families keep more of their hard-earned money.”
It is a reversal from a year agowhen the Bluegrass State failed to fully meet financial requirements, meaning the income tax rate will remain at 4% starting in January.
Since Republican lawmakers passed a tax overhaul in 2022, the income tax has been gradually reduced in half-percentage-point increments, provided targets are met that ensure revenues are enough to meet state spending.
For many proponents of that landmark legislation, the goal was to eventually phase out Kentucky’s individual income tax, shifting tax revenue toward personal consumption and away from personal income. That 2022 measure also expanded the state’s sales tax to more services.
Jason Petrie, chairman of the House Budget and Revenue Committee and the lead sponsor of the tax reform, said Wednesday that the latest tax cut is the result of a disciplined approach to the state budget.
“We’ve been willing to make tough decisions when it comes to the budget and to focus on meeting our needs rather than spending on wants,” Petrie said in a statement. “As a result, we continue to see that our plan works. We’re on a path to eliminating Kentucky’s individual income tax, and we’re doing it while providing the essential programs that Kentuckians depend on.”
According to McDaniel, Kentucky lawmakers have succeeded in cutting income taxes while strengthening public pension systems and making significant investments in education.
The latest income tax cut is expected to have strong GOP support. But in the coming years, there could be an internal debate among Republican lawmakers over how low the income tax can go without potentially having to change other taxes to meet state spending needs.
Meanwhile, critics of the income tax phaseout have warned that it will ultimately deprive essential government services of sufficient revenue. But when the state failed to meet the trigger conditions a year ago and pause the income tax cuts, Petrie and McDaniel said it showed that the process was working as intended to protect essential government services.
Democratic Gov. Andy Beshear, who has presided over record economic growth during his tenure, said in a social media post that the prospect of another income tax cut in 2026 was more good news for the state. Republican lawmakers have attributed the strong economic growth to the business-friendly policies they have enacted.
The financial terms, set forth in state law, necessary to activate the personal income tax cut require a balance in the Budget Reserve Trust Fund equal to at least 10 percent of the state’s General Fund revenues. In addition, General Fund revenues must exceed the appropriations and costs of a 1 percent state income tax cut.