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24 February 2025

Kentucky lowers personal income tax rate effective January 1, 2026

On February 6, 2025, Kentucky Governor Andy Beshear signed into law H.B. 1, which effective January 1, 2026, lowers the state's income tax rate from 4.0% to 3.5%. In subsequent years, the legislature may further reduce the income tax rate to zero if budget requirements are met.

Governor Beshear stated that this rate cut is possible because of the state's booming economy. (Press Release, February 6, 2025.)

Legislation enacted in 2023 lowered the personal income tax rate to 4.5% in 2023 and to 4.0% in 2024. (H.B. 1, 2023.)

Ernst & Young LLP insights

In keeping with the trend of recent years, numerous states are considering legislation to lower their personal income tax rates, some of them retroactive to January 1, 2025. Employers will need to closely monitor these developments.

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Contact Information

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Workforce Tax Services - Employment Tax Advisory Services

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor

Document ID: 2025-0543

 

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