Kentucky to lower state income tax in 2026
FRANKFORT, Ky. – Some good news for working Kentuckians as we head closer to the new year.
This past legislative session, the Kentucky State Legislature voted to decrease the state income tax from 4% to 3.5% starting in 2026. This will keep over $700 million in Kentuckians pockets and will all be a part of a plan to eliminate the state income tax altogether.
The income tax decrease, though, is not automatic and needs to hit certain parameters every year, as the state legislature has learned from other states mistakes in the past.
“The state of Kansas tried to do this all overnight. They were going do away with state income tax, and they about went broke. They had to go back and add the tax back to the people and all of those types of things. So I really feel good about what Kentucky has done over the last seven years as far as being fiscally responsible. If the economy’s not doing well in the state that year, if we don’t meet certain trigger mechanisms, then the income tax will not be cut for the next year,” state Rep. Kevin Jackson said.
The legislative body is looking forward to decreasing taxes, especially as Kentucky’s economy is looking to grow. Jackson says lowering these taxes will make the state more competitive with the states surrounding Kentucky and level the playing field.
“We’re on a much more level playing field with Tennessee. They have a nine point something sales tax. And so, even though they don’t have a state income tax, their sales tax is very high. Where we have a 6% sales tax, we’ll have our state income tax down to 3.5%. So I think we’re going to be on a very level playing field with with Tennessee and other states around us that were in competition for jobs and businesses to come to our state,” Jackson said.
The outlook for 2026, though, is uncertain right now, as the numbers have yet to be analyzed by those in Frankfort. But tariffs are showing to have hurt the Kentucky economy in certain areas and could prevent another tax decrease for the following year.
