Kentucky's income tax rate set to drop again. Here are the details

The individual income tax rate in Kentucky is set to drop again at the start of 2026.

Republican leaders in the General Assembly announced this week that the state’s budget has hit the required triggers to lower Kentucky’s income tax rate from 4% to 3.5%, as part of a system put in place two years ago when the legislature passed House Bill 8.

The decrease will go into effect after lawmakers approve the move in next year's General Assembly.

State Budget Director John Hicks told legislators Wednesday that the conditions had been met. He spoke during an Interim Joint Committee on Appropriations and Revenue committee meeting , giving a review of spending in the fiscal year 2024, which ended in June.

The announcement was celebrated by HB 8's sponsor, Rep. Jason Petrie, R-Elkton, who said the move came because legislators have been "willing to make tough decisions when it comes to the budget and to place an emphasis on meeting our needs rather than spending on wants."

Under HB 8, Kentucky's state income tax rate drops by half a percentage point when the budget reserve trust fund — unallocated money that can be spent by the General Assembly — is at least 10% of general fund revenue, and when general fund revenue in the previous year would have exceeded general fund spending if the income tax rate would have been a percentage point lower.

Those triggers were not met a year ago , with Sen. Chris McDaniel, R-Ryland Heights, arguing at the time the failure to reach them was "evidence we appropriately weighed the importance of lowering taxes with the need for critical government functions such as education, corrections, and more."

McDaniel, the Senate's budget chair, had more to celebrate this year, thanking colleagues in a Wednesday statement for "their unwavering commitment to ending the long and failed tradition of a tax-and-spend approach to governing that Frankfort was so accustomed to for decades."

Individual income tax revenue fell by about .6% in the most recent fiscal year, Hicks said in his presentation Wednesday, and sales tax revenue jumped by just over 4% after three consecutive years of double-digit growth. Individual income and sales taxes made up nearly 75% of general fund revenues.

The budget reserve trust fund has about $5.2 billion in it at the end of fiscal year 2024, Hicks said.

Reach Lucas Aulbach at laulbach@courier-journal.com.

This article originally appeared on Louisville Courier Journal: Kentucky's income tax rate set to drop again. Here are the details