Legislature passes latest income tax cut, sends it to the governor

Would lower the state income state beginning in 2026

(Story Courtesy of Kentucky Today)

FRANKFORT, Ky. (KT) – The Kentucky Senate wasted no time in cutting the state income tax rate by one-half percent. On the first day back following a three-week recess, it gave final passage to House Bill 1 on Tuesday. It is the first legislation to be sent to the governor this session.

The measure cleared the chamber on a bipartisan vote of 34-3, lowering the state's individual income tax to 3.5 percent beginning in January 2026.

"This disciplined approach to tax reform ensures Kentucky remains on a path of economic strength, while keeping more money where it belongs, in the pockets of hardworking Kentuckians," said Senate Budget Committee Chair Chris McDaniel, R-Ryland Heights, who carried the bill in the Senate. "Our goal is simple: let people keep more of what they earn while ensuring government lives within its means."

HB 1, sponsored by House Budget Committee Chair Rep. Jason Petrie, R-Elkton, builds on the structured income tax reduction plan that was established by 2022's HB 8, which provides that the rate can be lowered by one-half percent based on the amount of money in the Budget Reserve Trust Fund, also known as the Rainy-Day Fund. Per the Kentucky constitution, all appropriations and revenue-related legislation must originate in the House. HB 1 passed with overwhelming bipartisan support, 90-7, before moving swiftly through the Senate.

"Kentucky's economy is stronger than ever, thanks to a solid, conservative fiscal approach—the same strategy that recently earned the state credit rating upgrades from Moody's, Standard & Poor's, and Fitch," said Senate President Robert Stivers, R-Manchester. "Stronger bond ratings, growing reserves, and ongoing income tax reductions are all direct results of strategic policymaking and the conservative principles championed by Kentucky's supermajority."

“This system was designed to guarantee responsible, measured progress, and it has worked exactly as intended," McDaniel noted. “Time and time again, naysayers have predicted financial disaster, but the facts tell a different story—income taxes are lower, essential services remain funded, and our Rainy Day Fund is at its strongest level ever.

McDaniel emphasized that Kentucky’s disciplined approach avoided the pitfalls of states that rushed tax cuts without safeguards.

The first two rate reductions have saved taxpayers an estimated $1.8 billion. The latest authorized reduction through HB 1 is expected to save them an additional $718 million annually.

Gov. Andy Beshear has said he would sign the measure.