By Amy Sandlin, CPA, Tax Senior Manager at Blue & Co.
Kentucky House Bill 1 was signed into law by Governor Beshear on Friday, February 17th.
It reduces the individual income tax rate another 0.5 percent in 2024. This is a continuation of what we saw in 2022.
Last year’s legislation (HB 8) gave us a 0.5 percent annual rate cut, but the state had to reach certain budget goals before the cut went into effect. Kentucky met the budget goals for the first reduction, so the individual income tax rate decreased from 5 percent to 4.5 percent for 2023.
Reducing the income tax rate is part of a bigger political goal to shift Kentucky away from income taxes towards sales taxes.
Therefore, 2022 legislation also significantly expanded the list of services that are subject to Kentucky sales tax. For more information on the sales tax changes from 2022 legislation, see our article here.
HB1 is simpler than the 2022 legislation. It locks in the first rate cut to 4.5 percent for 2023, and it reduces the rate to 4 percent for 2024. The state does not have to meet budget goals to get the rate cut in 2024.
If you have questions about how Kentucky House Bill 1 law affects you, we encourage you to reach out to your local Blue and Co. advisor for more information and guidance.
