AN ACT relating to the individual income tax rate.

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AN ACT relating to the individual income tax rate. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
Section 1. KRS 141.020 is amended to read as follows: 3
(1) An annual tax shall be paid for each taxable year by every resident individual of 4
this state upon his or her entire net income as defined in this chapter. The tax shall 5
be determined by ap plying the rates in subsection (2) of this section to net income 6
and subtracting allowable tax credits provided in subsection (3) of this section. 7
(2) (a) For taxable years beginning on or after January 1, 2027, the tax shall be 8
determined by: 9
1. Applying the following rates, based on net incomes of up to three 10
hundred thousand dollars ($300,000): 11
a. Three and one-half percent (3.5%) of the amount of net income, 12
up to two hundred fifty thousand dollars ($250,000); and 13
b. Six percent (6%) of the amount of net income over two hundred 14
fifty thousand dollars ($250,000) and up to three hundred 15
thousand dollars ($300,000); or 16
2. Applying a rate of six percent (6%) of net income, if the total amount 17
of net income exceeds three hundred thousand dollars ($300,000). 18
(b) For taxable years beginning on or after January 1, 2026, but before 19
January 1, 2027, the tax s hall be three and one -half percent (3.5%) of net 20
income. 21
(c) For taxable years beginning on or after January 1, 2024, but before 22
January 1, 2026, the tax shall be four percent (4%) of net income. 23
(d) For taxable years beginning on or after January 1, 2023, but before 24
January 1, 2024, the tax shall be four and one -half percent (4.5%) of net 25
income[As used in this subsection: 26
1. "Balance in the BRTF at the end of a fiscal year" means the budget 27
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reserve trust fund account established in KRS 48.705 and includes the 1
following amounts and actions resulting from the final close of the fiscal 2
year: 3
a. The amount of moneys in the fund at the end of a fiscal year; 4
b. All close -out actions related to a budget reduction plan under KRS 5
48.130 or as modified in a branch budget bill; and 6
c. All close-out actions related to the surplus expenditure plan under KRS 7
48.140 or as modified in a branch budget bill; 8
2. "GF appropriations" means the authorization by the General Assembly 9
to expend GF moneys, excluding: 10
a. Continuing appropriations; 11
b. Any appropriation to the budget reserve trust fund; 12
c. Any lump-sum appropriation to a state -administered retirement system, 13
as defined in KRS 7A.210, that is in excess of the appropriations 14
specifically budgeted to meet the recurring sta tutorily required 15
contributions or recurring actuarially determined contributions for a 16
state-administered retirement system under KRS 21.525, 61.565, 17
61.702, 78.635, 78.5536, or 161.550, as applicable; and 18
d. Any appropriation from the budget reserve trus t fund account 19
established in KRS 48.705 that is: 20
i. Solely supported by moneys from the budget reserve trust fund account; 21
and 22
ii. Specifically identified in the appropriation language as not being a GF 23
appropriation for the purposes of this section; 24
3. "GF moneys" means receipts deposited in the general fund defined in 25
KRS 48.010, excluding tobacco moneys deposited in the fund 26
established in KRS 248.654; 27
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4. "IIT equivalent" means the amount of reduction in GF moneys resulting 1
from a one (1) percentage poi nt reduction to the individual income tax 2
rate and shall be calculated by dividing the actual individual income tax 3
receipts for the fiscal year under consideration by: 4
a. The sum of: 5
i. The individual income tax rate, expressed as a percentage, for the fi rst 6
six (6) months of the fiscal year; and 7
ii. The individual income tax rate, expressed as a percentage, for the 8
second six (6) months of the fiscal year; and 9
b. Dividing the sum determined in subdivision a. of this subparagraph by 10
two (2); and 11
5. For ana lysis through fiscal year 2024 -2025 and for reporting through 12
September 5, 2025: 13
a. "Reduction conditions" means: 14
i. The balance in the BRTF at the end of a fiscal year shall be equal to or 15
greater than ten percent (10%) of the GF moneys for that fiscal year; and 16
ii. GF moneys at the end of a fiscal year shall be equal to or greater than 17
GF appropriations for that fiscal year plus the IIT equivalent for that 18
fiscal year; and 19
b. "Tax rate reduction" means the current tax rate minus five -tenths of one 20
percent (0.5%). 21
(b) 1. For the analysis for fiscal year 2025 -2026 and fiscal year 2026 -22
2027, and for reporting on or before September 5, 2026, and September 23
5, 2027, "tax rate reducti on conditions" means the greatest reduction 24
achieved under subparagraphs 2. and 3. of this paragraph. 25
2. If: 26
a. The balance in the BRTF at the end of a fiscal year is equal to or greater 27
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than ten percent (10%) of the GF moneys for that fiscal year; and 1
b. GF moneys at the end of a fiscal year are equal to or greater than GF 2
appropriations for that fiscal year plus an amount that falls within a 3
range of greater than fifty percent (50%) but less than one hundred 4
percent (100%) of the IIT equivalent for that fiscal year; 5
then the tax rate reduction may be the current tax rate minus twenty -five 6
one-hundredths of one percent (0.25%). 7
3. If: 8
a. The balance in the BRTF at the end of a fiscal year is equal to or greater 9
than ten percent (10%) of the GF moneys for that fiscal year; and 10
b. GF moneys at the end of a fiscal year are equal to or greater than GF 11
appropriations for that fiscal year plus the IIT equivalent for that fiscal 12
year; 13
then the tax rate reduction may be the current tax rate minus five -tenths 14
of one percent (0.5%). 15
(c) 1. For the analysis for fiscal year 2027 -2028 and each fiscal year 16
thereafter and for reporting on or before September 5, 2028, and each 17
September 5 thereafter, "tax rate reduction conditions" means the 18
greatest reduction achieved und er subparagraphs 2. to 6. of this 19
paragraph. 20
2. If: 21
a. The balance in the BRTF at the end of a fiscal year is equal to or greater 22
than ten percent (10%) of the GF moneys for that fiscal year; and 23
b. GF moneys at the end of a fiscal year are equal to or gre ater than GF 24
appropriations for that fiscal year plus an amount that falls within a 25
range of equal to or greater than twenty percent (20%) but not greater 26
than thirty-nine percent (39%) of the IIT equivalent for that fiscal year; 27
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then the tax rate reducti on may be the current tax rate minus one -tenth 1
of one percent (0.1%). 2
3. If: 3
a. The balance in the BRTF at the end of a fiscal year is equal to or greater 4
than ten percent (10%) of the GF moneys for that fiscal year; and 5
b. GF moneys at the end of a fiscal year are equal to or greater than GF 6
appropriations for that fiscal year plus an amount that falls within a 7
range of equal to or greater than forty percent (40%) but not greater than 8
fifty-nine percent (59%) of the IIT equivalent for that fiscal year; 9
then the tax rate reduction may be the current tax rate minus two -tenths 10
of one percent (0.2%). 11
4. If: 12
a. The balance in the BRTF at the end of a fiscal year is equal to or greater 13
than ten percent (10%) of the GF moneys for that fiscal year; and 14
b. GF moneys at the end of a fiscal year are equal to or greater than GF 15
appropriations for that fiscal year plus an amount that falls within a 16
range of equal to or greater than sixty percent (60%) but not greater than 17
seventy-nine percent (79%) of the IIT equivalent for that fiscal year; 18
then the tax rate reduction may be the current tax rate minus three-tenths 19
of one percent (0.3%). 20
5. If: 21
a. The balance in the BRTF at the end of a fiscal year is equal to or greater 22
than ten percent (10%) of the GF moneys for that fiscal year; and 23
b. GF moneys at the end of a fiscal year are equal to or greater than GF 24
appropriations for that fiscal year plus an amount that falls within a 25
range of equal to or greater than eighty percent (80%) but not greater 26
than ninety-nine percent (99%) of the IIT equivalent for that fiscal year; 27
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then the tax rate reduction may be the current tax rate minus four -tenths 1
of one percent (0.4%). 2
6. If: 3
a. The balance in the BRTF at the end of a fiscal year is equal to or greater 4
than ten percent (10%) of the GF moneys for that fiscal year; and 5
b. GF moneys at the end of a fiscal year are equal to or greater than GF 6
appropriations for that fiscal year plus t he IIT equivalent for that fiscal 7
year; 8
then the tax rate reduction may be the current tax rate minus five -tenths 9
of one percent (0.5%). 10
(d) For taxable years beginning on or after January 1, 2023, but [prior] to January 11
1, 2024, the tax shall be four and one-half percent (4.5%) of net income. 12
(e) For taxable years beginning on or after January 1, 2024, but before January 1, 13
2026, the tax shall be four percent (4%) of net income. 14
(f) For taxable years beginning on or after January 1, 2026, the tax shall be three 15
and one-half percent (3.5%) of net income. 16
(g) ]1. For taxable years beginning on or after January 1, 2027, the income tax 17
rate may be reduced according to the annual process established in: 18
a. subparagraph 2. or 3. of this paragraph; and 19
b. Subparagraph 4. of this paragraph. 20
2. a. The Office of State Budget Director shall review the reduction 21
conditions for the fiscal year 2024-2025 no later than September 1, 22
2025. 23
b. After reviewing the reduction conditions under subdivision a. of this 24
subparagraph, the Office of State Budget Director shall, no later 25
than September 5, 2025, report to the Interim Joint Committee on 26
Appropriations and Revenue: 27
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i. Whether the reduction conditions for the fiscal year 2024 -2025 have 1
been met; and 2
ii. The amounts associat ed with each item within the reduction conditions 3
used for making that determination. 4
c. i. If the reduction conditions have been met for fiscal year 2024 -5
2025, the General Assembly may take action to reduce the rate in 6
paragraph (f) of this subsection for the taxable year beginning 7
January 1, 2027. 8
ii. If the reduction conditions have not been met for fiscal year 2024 -2025 9
or the General Assembly does not take action to reduce the rate in 10
paragraph (f) of this subsection, the department shall maintain the 11
rate in paragraph (f) of this subsection for the taxable year 12
beginning January 1, 2027. 13
3. a. The Office of State Budget Director shall review the tax rate 14
reduction conditions for the fiscal year 2025 -2026 no later than 15
September 1, 2026. 16
b. After review ing the tax rate reduction conditions under 17
subdivision a. of this subparagraph, the Office of State Budget 18
Director shall, no later than September 5, 2026, report to the 19
Interim Joint Committee on Appropriations and Revenue: 20
i. Whether the tax rate reduct ion conditions for the fiscal year 21
2025-2026 have been met; and 22
ii. The amounts associated with each item within the tax rate 23
reduction conditions used for making that determination. 24
c. i. If the tax rate reduction conditions have been met for fiscal 25
year 2025-2026, the General Assembly may take action to 26
reduce the rate in paragraph (f) of this subsection for the 27
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taxable year beginning January 1, 2028. 1
ii. If the tax rate reduction conditions have not been met for 2
fiscal year 2025-2026 or the General Assembly does not take 3
action to reduce the rate in paragraph (f) of this subsection, 4
the department shall maintain the rate in paragraph (f) of this 5
subsection for the taxable year beginning January 1, 2028. 6
4. a. The Office of State Budget Director shall impl ement an annual 7
process to review and report future reduction conditions or tax rate 8
reduction conditions at the same time and in the same manner for 9
each fiscal year subsequent to the fiscal year 2024 -2025 and each 10
taxable year subsequent to the taxable y ear beginning January 1, 11
2027. 12
b. The department shall not implement an income tax rate reduction 13
without an action by the General Assembly. 14
c. The annual process shall continue until the income tax rate is 15
zero]. 16
(e)[(h)] For taxable years beginning on or after January 1, 2018, but before 17
January 1, 2023, the tax shall be five percent (5%) of net income. 18
(f)[(i)] For taxable years beginning after December 31, 2004, and before 19
January 1, 2018, the tax shall be determined by applying the following rates to 20
net income: 21
1. Two percent (2%) of the amount of net income up to three thousand 22
dollars ($3,000); 23
2. Three percent (3%) of the amount of net inc ome over three thousand 24
dollars ($3,000) and up to four thousand dollars ($4,000); 25
3. Four percent (4%) of the amount of net income over four thousand 26
dollars ($4,000) and up to five thousand dollars ($5,000); 27
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4. Five percent (5%) of the amount of net inco me over five thousand 1
dollars ($5,000) and up to eight thousand dollars ($8,000); 2
5. Five and eight -tenths percent (5.8%) of the amount of net income over 3
eight thousand dollars ($8,000) and up to seventy -five thousand dollars 4
($75,000); and 5
6. Six percent (6%) of the amount of net income over seventy -five 6
thousand dollars ($75,000). 7
(3) (a) The following tax credits, when applicable, shall be deducted from the result 8
obtained under subsection (2) of this section to arrive at the annual tax: 9
1. a. For taxable years beginning before January 1, 2014, twenty dollars 10
($20) for an unmarried individual; and 11
b. For taxable years beginning on or after January 1, 2014, and 12
before January 1, 2018, ten dollars ($10) for an unmarried 13
individual; 14
2. a. For taxable years beginning before January 1, 2014, twenty dollars 15
($20) for a married individual filing a separate return and an 16
additional twenty dollars ($20) for the spouse of taxpayer if a 17
separate return is made by the taxpayer and if the spouse, for the 18
calendar year in which the taxable year of the taxpayer begins, had 19
no Kentucky gross income and is not the dependent of another 20
taxpayer; or forty dollars ($40) for married persons filing a joint 21
return, provided neither spouse is the dependent of another 22
taxpayer. Th e determination of marital status for the purpose of 23
this section shall be made in the manner prescribed in Section 153 24
of the Internal Revenue Code; and 25
b. For taxable years beginning on or after January 1, 2014, and 26
before January 1, 2018, ten dollars ($ 10) for a married individual 27
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filing a separate return and an additional ten dollars ($10) for the 1
spouse of a taxpayer if a separate return is made by the taxpayer 2
and if the spouse, for the calendar year in which the taxable year of 3
the taxpayer begins, h ad no Kentucky gross income and is not the 4
dependent of another taxpayer; or twenty dollars ($20) for married 5
persons filing a joint return, provided neither spouse is the 6
dependent of another taxpayer. The determination of marital status 7
for the purpose o f this section shall be made in the manner 8
prescribed in Section 153 of the Internal Revenue Code; 9
3. a. For taxable years beginning before January 1, 2014, twenty dollars 10
($20) credit for each dependent. No credit shall be allowed for any 11
dependent who has made a joint return with his or her spouse; and 12
b. For taxable years beginning on or after January 1, 2014, and 13
before January 1, 2018, ten dollars ($10) credit for each 14
dependent. No credit shall be allowed for any dependent who has 15
made a joint return with his or her spouse; 16
4. An additional forty dollars ($40) credit if the taxpayer has attained the 17
age of sixty-five (65) before the close of the taxable year; 18
5. An additional forty dollars ($40) credit for taxpayer's spouse if a 19
separate return is made by the taxpayer and if the taxpayer's spouse has 20
attained the age of sixty -five (65) before the close of the taxable year, 21
and, for the calendar year in which the taxable year of the taxpayer 22
begins, has no Kentucky gross income and is not the dependent o f 23
another taxpayer; 24
6. An additional forty dollars ($40) credit if the taxpayer is blind at the 25
close of the taxable year; 26
7. An additional forty dollars ($40) credit for taxpayer's spouse if a 27
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separate return is made by the taxpayer and if the taxpayer's spouse is 1
blind, and, for the calendar year in which the taxable year of the 2
taxpayer begins, has no Kentucky gross income and is not the dependent 3
of another taxpayer; and 4
8. An additional twenty dollars ($20) credit shall be allowed if the taxpayer 5
is a member of the Kentucky National Guard at the close of the taxable 6
year. 7
(b) In the case of nonresidents, the tax credits allowable under this subsection 8
shall be the portion of the credits that are represented by the ratio of the 9
taxpayer's Kentucky adjusted gross income as determined by KRS 141.019 to 10
the taxpayer's adjusted gross income as defined in Section 62 of the Internal 11
Revenue Code. However, in the case of a married nonresident taxpayer with 12
income from Kentucky sources, whose spouse has no income from Kentucky 13
sources, the taxpayer shall determine allowable tax credit(s) by either: 14
1. The method contained above applied to the taxpayer's tax credit(s), 15
excluding credits for a spouse and dependents; or 16
2. Prorating the taxpayer's tax credit(s) plus the tax credits for the 17
taxpayer's spouse and dependents by the ratio of the taxpayer's 18
Kentucky adjusted gross income as determined by KRS 141.019 to the 19
total joint federal adjusted gross income of the taxpayer and the 20
taxpayer's spouse. 21
(c) In the case of a part -year resident, the tax credits allowable under this 22
subsection shall be the portion of the credits represented by the ratio of the 23
taxpayer's Kentucky adjusted gross income as determined by KRS 141.019 to 24
the taxpayer's adjusted gross income as d efined in Section 62 of the Internal 25
Revenue Code. 26
(4) An annual tax shall be paid for each taxable year as specified in this section upon 27
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the entire net income except as herein provided, from all tangible property located 1
in this state, from all intangible property that has acquired a business situs in this 2
state, and from business, trade, profession, occupation, or other activities carried on 3
in this state, by natural persons not residents of this state. A nonresident individual 4
shall be taxable only upon the amount of income received by the individual from 5
labor performed, business done, or from other activities in this state, from tangible 6
property located in this state, and from intangible property which has acquired a 7
business situs in this state; provided, however, that the situs of intangible personal 8
property shall be at the residence of the real or beneficial owner and not at the 9
residence of a trustee having custody or possession thereof. For taxable years 10
beginning on or after January 1, 2021, but before January 1, 2027, the tax imposed 11
by this section shall not apply to a disaster response employee or to a disaster 12
response business. The re mainder of the income received by the nonresident shall 13
be deemed nontaxable by this state. 14
(5) Subject to the provisions of KRS 141.081, any individual may elect to pay the 15
annual tax imposed by KRS 141.023 in lieu of the tax levied under this section. 16
(6) A part -year resident is subject to taxation, as prescribed in subsection (1) of this 17
section, during that portion of the taxable year that the individual is a resident and, 18
as prescribed in subsection (4) of this section, during that portion of the taxable year 19
when the individual is a nonresident. 20