On February 17, 2023, Kentucky Governor Andy Beshear signed House Bill 1 (HB 1), which amends Ky. Rev. Stat. 141.020(2)(d) to codify the reduction of Kentucky's flat individual income tax rate from 5% to 4.5% for tax years beginning on or after January 1, 2023, and to 4% for tax years beginning on or after January 1, 2024.¹

The flat corporate rate of 5% imposed in Ky. Rev. Stat. 141.040(2) remains unchanged.

Tax proposals under consideration

In addition to the recently enacted rate reduction, the Kentucky legislature is considering bills on state and local tax (SALT) parity (i.e., an elective pass-through entity tax intended as a workaround to the $10,000 federal limit on the SALT deduction). The legislature is also expected to update the state's conformity to the Internal Revenue Code (IRC), which is currently the IRC as of December 31, 2021. The IRC conformity update, if enacted, would apply to tax years beginning on or after January 1, 2022.

EY will continue to monitor developments in this area.

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Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor

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ENDNOTE

¹ See HB 8 (Ky. Laws 2022), which implemented conditional reductions in the individual income tax rate. See Tax Alert 2022-0564.