Kentucky House Republicans say the state is on track to implement an income tax reduction in January. Legislators passed House Bill 8 in the 2022 session, which established a series of incremental cuts to the personal income tax rate if Kentucky hit specific benchmarks. January’s change moves the rate to 4.5%.

The state ended Fiscal Year 2022 with a revenue surplus of $1.01 billion ‒ the second highest in state history. House Speaker David Osborne (R-Prospect) called the state’s financial situation good news. “This is what happens when you commit to sound fiscal policies and responsible tax reforms in order to foster economic growth as we have over the past five years,” Osborne said in a news release.

Tax reform measures instituted in the 2022 session took the first step toward modernizing the state’s antiquated tax structure. KLC Executive Director/CEO J.D. Chaney called the move “promising.” City officials remain committed to working with the legislature to shift local taxation toward a consumption-based model instead of the current structure that largely taxes productivity.

“We have said for some time that the revenue models of the past are handcuffing our local and state elected officials, which ultimately hampers growth in our communities,” Chaney remarked. “Comprehensive local tax reform remains the top legislative priority for cities, and it is encouraging to know that legislators recognize the need for modernization. Now that they have addressed the need on the state level, we look forward to discussing with lawmakers in the upcoming 2023 session ways to continue the momentum at the local level.”

House Bill 8 outlines a plan for a series of incremental decreases until the personal income tax is eliminated. A formula based on revenues, expenses, and the dollar value of a 1% drop in the tax triggers each cut. Legislative branch tax experts expect the January 2023 decrease to keep $600 – $650 million in taxpayer pockets.