Courtesy of Kentucky Lantern
A bill that would further cut the state’s income tax rate is headed to Kentucky Gov. Andy Beshear’s desk after final passage Tuesday in the Kentucky Senate.
House Bill 1, sponsored by House Appropriations and Revenue Committee chair Jason Petrie, R-Elkton, would reduce the individual income tax rate from 4% to 3.5% effective Jan. 1, 2026. The change will reduce state revenues by an estimated $718 million annually, according to a fiscal note. The Republican-controlled legislature in 2022 reduced the rate by a half percentage point from 5% and by the same amount again in 2023.
Similar to when it passed the Kentucky House of Representatives in January, HB 1 garnered some bipartisan support with a 34-3 vote in the Kentucky Senate. Four Democrats voted for the legislation alongside all Republicans while three Democrats opposed it. Sen. Chris McDaniel, R-Ryland Heights, touted the actions of the GOP-dominated legislature over the past several years to reduce the income tax rate while making investments throughout the state. He pushed back against past criticisms that the legislature hasn’t properly funded the state’s educational system.
“The General Assembly is going to do everything in its power, and frequently with success, to lower your taxes,” McDaniel said. “We fully fund our educational system and then some. To those that criticize this General Assembly, I say you do not know what you’re talking about.”
Beshear, a Democrat, has said he intends to sign the bill.
Sen. Cassie Chambers Armstrong, D-Louisville, who voted against the bill, said she appreciated the intent of the legislation to give money back to Kentuckians but worried cutting the income tax rate further would primarily benefit wealthier Kentuckians, echoing other concerns from interest groups.
“I also worry about cutting our revenues at a time of such economic uncertainty. We don’t know what tariffs, if any, might be coming. We don’t know what federal funds, if any, might be going away,” Chambers Armstrong said, referencing the Trump administration’s efforts to impose tariffs on China, Canada and Mexico and freeze federal funding, a move that’s been blocked in court.
Sen. Gex Williams, R-Verona, had withdrawn a floor amendment that would more quickly reduce the state income tax. McDaniel had warned earlier in the session against “stunts” to reduce the income tax rapidly that could impact the state budget and create consequences at the ballot box. Some Republicans among the GOP supermajorities in the legislature want to more expediently reduce the income tax rate to zero.
Williams said after discussing with fellow lawmakers, he received a commitment for the body to consider mechanisms that would allow the legislature to reduce the income tax rate by greater than a half percentage point. The current framework established by Republicans in 2022 allows for only a half percentage point cut every year if certain fiscal triggers are met.
“I am looking forward to this next session that we will be able to strive for a greater than one half percent cut,” Williams said.
Kentucky Lantern is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.