LOUISVILLE, Ky. (WDRB) -- Kentuckians will get a boost in their paychecks in 2026.
The General Assembly passed House Bill 1 in early this year, which lowers the state’s individual income tax from 4% to 3.5% starting Jan. 1.
Supporters of the measure said the lower rate will promote long-term economic growth and population gains in the Bluegrass State by enabling people to keep more of the money they earn.
State lawmakers, like Rep. Jason Nemes, R-Louisville, hope to completely eliminate the state's income tax. He believes it's possible in 8-10 years with incremental cuts.
"It's a conservative approach to conservative goal," said Rep. Nemes. "So, over time, we're going to get to 0% state income tax."
In 2022, the legislature passed a bill which lowers Kentucky's income tax rate gradually with a goal of eventually eliminating it altogether, but the reductions depend on certain budget conditions being met.
Lawmakers have different interpretations on whether those conditions have been met this year, as they debate a further cut for 2027.
When the revenue triggers were measured in July, the state missed the mark by around $7 million. Republicans in the House say the cuts should continue, but the State Senate President Robert Stivers (R-Manchester) disagrees.
"In the last session we did to where it may not be as big of an incremental decline, but we set some different triggers that would give us the ability to hit those incremental spots to make incremental declines. I don't think we need to go there because we set the policy."
However, Rep. Nemes argues that the trigger was actually hit.
Because of last year's severe weather, the Internal Revenue Service provided tax relief, pushing the federal tax filing deadline from April to November.
Once that tax revenue was accounted for, Nemes argues the trigger was reached.
"We measure whether or not we hit the revenue triggers in July," he said. "And so that normally makes sense when the taxes are due in April, but when they're due November, it doesn't make much sense."
Beshear said earlier this year that the half-percentage point cut would reduce the state's general fund revenues by $718 million annually once it is fully implemented. The general fund pays for most state services, including education, health care and public safety.
Beshear sounded confident the state can absorb the revenue loss.
The governor pointed to the influx of private-sector investment and jobs added in Kentucky in recent years. Republican lawmakers say those successes resulted from business-friendly policies they passed.
"We're trying to incentivize growth for businesses in Kentucky and outside Kentucky to grow the pot," Nemes said. "When we do that, we'll have more taxpayers, more money, but it's also more money in the tax revenue so we can provide for the necessities of government."
The push for tax cuts in Kentucky comes as President Donald Trump has proposed tax cuts for individuals and businesses, while governors and lawmakers in some states are seeking to cut more. The movement for more tax cuts comes after most states already have slashed income, sales or property taxes in recent years, and it’s pressing ahead even though state revenue growth has been slowing or stagnating.
Since the passage of a tax overhaul in 2022, the individual income tax in Kentucky has gradually been reduced by increments of a half-percentage point, conditioned on meeting benchmarks to ensure revenues are sufficient to meet state spending needs.
As part of that overhaul, the state sales tax was extended to apply to more services. Critics say lower-income families were hurt the most by applying the sales tax to more services.
More Kentucky politics:
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Kentucky lawmakers propose hands-free law to curb distracted driving
Kentucky lawmaker plans to file bills in response to early release of man in 6-year-old boy's death
Kentucky lawmakers to reintroduce 'Troy's Law,' aimed at protecting tow truck drivers
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