Governor Andy Beshear signed House Bill 1 earlier this month, enacting a new state spending plan that reduces income tax rates and aims to help small business owners retain more of their earnings.
The legislation is significant for both taxpayers and the business community, as it introduces changes to Kentucky’s tax laws that could impact economic growth and job creation.
“Our small business members applaud the General Assembly for their fiscal restraint and ability to plan for the long term,” Tom Underwood, State Director of the National Federation of Independent Business (NFIB) in Kentucky, said. The bill lowers the individual income tax rate to 4% for taxable years beginning on or after January 1, 2024. It will decrease further to 3.5% in 2026.
Underwood said most small businesses in Kentucky are organized as pass-through entities, meaning profits are taxed at the individual rate rather than a corporate rate. “Lower tax rates mean small business owners will have more money to improve their businesses, hire workers, and expand,” he said.
House Bill 1 also includes provisions that allow additional tax cuts if certain financial conditions are met. The state must maintain a strong savings fund and sufficient revenue to cover expenses before further reductions can occur.
“This is a commonsense approach to easing the financial pressure on taxpayers while ensuring that Kentucky’s budget is balanced and that our economy is strong,” Underwood said.
