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: 8
1. If net income is less than one hundred fi fty thousand dollars 9
($150,000), the tax shall be determined by applying the following rates 10
to net income: 11
a. Four percent (4%) of the amount of net income up to one 12
hundred thousand dollars ($100,000); 13
b. Five percent (5%) of the amount of net income over one hundred 14
thousand dollars ($100,000) and up to one hundred twenty -five 15
thousand dollars ($125,000); and 16
c. Six percent (6%) of the amount of net income over one hundred 17
twenty-five thousand dollars ($125,000) and up to one hundred 18
fifty thousand dollars ($150,000); or 19
2. If net income is one hundred fifty thousand dollars ($150,000) or 20
more, the tax shall be six percent (6%) of net income. 21
(b) For taxable years beginning on or after January 1, 2026, but before 22
January 1, 2027, the tax shall be three and one -half percent (3.5%) of net 23
income. 24
(c) For taxable years beginning on or after January 1, 2024, but befor e 25
January 1, 2026, the tax shall be four percent (4%) of net income. 26
(d) For taxable years beginning on or after January 1, 2023, but 27
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before January 1, 2024, the tax shall be four and one -half 1
percent (4.5%) of net income As used in this subsection: 2
1. "Balance in the BRTF at the end of a fiscal year" means the budget 3
reserve trust fund account established in KRS 48.705 and includes 4
the following amounts and actions resulting from the final close of 5
the fiscal year: 6
a. The amount of moneys in the fund at the end of a fiscal year; 7
b. All close-out actions related to a budget reduction plan under KRS 8
48.130 or as modified in a branch budget bill; and 9
c. All close-out actions related to the surplus expenditure plan under 10
KRS 48.140 or as modified in a branch budget bill; 11
2. "GF appropriations" means the authorization by the General 12
Assembly to expend GF moneys, excluding: 13
a. Continuing appropriations; 14
b. Any appropriation to the budget reserve trust fund; 15
c. Any lump -sum appropriation to a state -administered ret irement 16
system, as defined in KRS 7A.210, that is in excess of the 17
appropriations specifically budgeted to meet the recurring 18
statutorily required contributions or recurring actuarially 19
determined contributions for a state -administered retirement 20
system un der KRS 21.525, 61.565, 61.702, 78.635, 78.5536, or 21
161.550, as applicable; and 22
d. Any appropriation from the budget reserve trust fund account 23
established in KRS 48.705 that is: 24
i. Solely supported by moneys from the budget reserve trust fund 25
account; and 26
ii. Specifically identified in the appropriation language as not being a 27
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GF appropriation for the purposes of this section; 1
3. "GF moneys" means receipts deposited in the general fund defined 2
in KRS 48.010, excluding tobacco moneys deposited in the fund 3
established in KRS 248.654; 4
4. "IIT equivalent" means the amount of reduction in GF moneys 5
resulting from a one (1) percentage point reduction to the 6
individual income tax rate and shall be calculated by dividing the 7
actual individual income tax receipts fo r the fiscal year under 8
consideration by: 9
a. The sum of: 10
i. The individual income tax rate, expressed as a percentage, for the 11
first six (6) months of the fiscal year; and 12
ii. The individual income tax rate, expressed as a percentage, for the 13
second six (6) months of the fiscal year; and 14
b. Dividing the sum determined in subdivision a. of this 15
subparagraph by two (2); and 16
5. For analysis through fiscal year 2024 -2025 and for reporting 17
through September 5, 2025: 18
a. "Reduction conditions" means: 19
i. The balance in the BRTF at the end of a fiscal year shall be equal 20
to or greater than ten percent (10%) of the GF moneys for that 21
fiscal year; and 22
ii. GF moneys at the end of a fiscal year shall be equal to or greater 23
than GF appropriations for that fiscal year plus the IIT equivalent 24
for that fiscal year; and 25
b. "Tax rate reduction" means the current tax rate minus five -tenths 26
of one percent (0.5%). 27
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(b) 1. For the analysis for fiscal year 2025 -2026 and fiscal year 1
2026-2027, and for reporting on or before September 5, 2026, and 2
September 5, 2027, "tax rate reduction conditions" means the 3
greatest reduction achieved under subparagraphs 2. and 3. of this 4
paragraph. 5
2. If: 6
a. The balance in the BRTF at the end of a fiscal year is equal to or 7
greater than ten percent (10%) of the GF moneys for that fiscal 8
year; and 9
b. GF moneys at the end of a fiscal year are equal to or greater than 10
GF appropriations for tha t fiscal year plus an amount that falls 11
within a range of greater than fifty percent (50%) but less than one 12
hundred percent (100%) of the IIT equivalent for that fiscal year; 13
then the tax rate reduction may be the current tax rate minus 14
twenty-five one-hundredths of one percent (0.25%). 15
3. If: 16
a. The balance in the BRTF at the end of a fiscal year is equal to or 17
greater than ten percent (10%) of the GF moneys for that fiscal 18
year; and 19
b. GF moneys at the end of a fiscal year are equal to or greater than 20
GF appropriations for that fiscal year plus the IIT equivalent for 21
that fiscal year; 22
then the tax rate reduction may be the current tax rate minus five -23
tenths of one percent (0.5%). 24
(c) 1. For the analysis for fiscal year 2027 -2028 and each fiscal 25
year thereafter and for reporting on or before September 5, 2028, 26
and each September 5 thereafter, "tax rate reduction conditions" 27
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means the greatest reduction achieved under subparagraphs 2. to 6. 1
of this paragraph. 2
2. If: 3
a. The balance in the BRTF at the end of a fiscal year is equal to or 4
greater than ten percent (10%) of the GF moneys for that fiscal 5
year; and 6
b. GF moneys at the end of a fiscal year are equal to or greater than 7
GF appropriations for that fiscal year plus an amount that falls 8
within a range of equal to or greater than twenty percent (20%) but 9
not greater than thirty -nine percent (39%) of the IIT equivalent for 10
that fiscal year; 11
then the tax rate reduction may be the current tax rate minus one -12
tenth of one percent (0.1%). 13
3. If: 14
a. The balance in the BRTF at the end of a fiscal year is equal to or 15
greater than ten percent (10%) of the GF moneys for that fiscal 16
year; and 17
b. GF moneys at the end of a fiscal year are equal to or greater than 18
GF appropriations for that fiscal year plus an amount tha t falls 19
within a range of equal to or greater than forty percent (40%) but 20
not greater than fifty -nine percent (59%) of the IIT equivalent for 21
that fiscal year; 22
then the tax rate reduction may be the current tax rate minus two -23
tenths of one percent (0.2%). 24
4. If: 25
a. The balance in the BRTF at the end of a fiscal year is equal to or 26
greater than ten percent (10%) of the GF moneys for that fiscal 27
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year; and 1
b. GF moneys at the end of a fiscal year are equal to or greater than 2
GF appropriations for that fiscal year plus an amount that falls 3
within a range of equal to or greater than sixty percent (60%) but 4
not greater than seventy -nine percent (79%) of the IIT equivalent 5
for that fiscal year; 6
then the tax rate reduction may be the current tax rate minus three -7
tenths of one percent (0.3%). 8
5. If: 9
a. The balance in the BRTF at the end of a fiscal year is equal to or 10
greater than ten percent (10%) of the GF moneys for that fiscal 11
year; and 12
b. GF moneys at the end of a fiscal year are equal to or greater than 13
GF ap propriations for that fiscal year plus an amount that falls 14
within a range of equal to or greater than eighty percent (80%) but 15
not greater than ninety -nine percent (99%) of the IIT equivalent 16
for that fiscal year; 17
then the tax rate reduction may be the c urrent tax rate minus four-18
tenths of one percent (0.4%). 19
6. If: 20
a. The balance in the BRTF at the end of a fiscal year is equal to or 21
greater than ten percent (10%) of the GF moneys for that fiscal 22
year; and 23
b. GF moneys at the end of a fiscal year are equal to or greater than 24
GF appropriations for that fiscal year plus t he IIT equivalent for 25
that fiscal year; 26
then the tax rate reduction may be the current tax rate minus five -27
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tenths of one percent (0.5%). 1
(d) For taxable years beginning on or after January 1, 2023, but prior 2
to January 1, 2024, the tax shall be four and o ne-half percent 3
(4.5%) of net income. 4
(e) For taxable years beginning on or after January 1, 2024, but before 5
January 1, 2026, the tax shall be four percent (4%) of net income. 6
(f) For taxable years beginning on or after January 1, 2026, the tax 7
shall be three and one-half percent (3.5%) of net income. 8
(g) 1. For taxable years beginning on or after January 1, 2027, the 9
income tax rate may be reduced according to the annual process 10
established in: 11
a. Subparagraph 2. or 3. of this paragraph; and 12
b. Subparagraph 4. of this paragraph. 13
2. a. The Office of State Budget Director shall review the 14
reduction conditions for the fiscal year 2024 -2025 no later than 15
September 1, 2025. 16
b. After reviewing the reduction conditions under subdivision a. of 17
this subparagraph, t he Office of State Budget Director shall, no 18
later than September 5, 2025, report to the Interim Joint 19
Committee on Appropriations and Revenue: 20
i. Whether the reduction conditions for the fiscal year 2024 -2025 21
have been met; and 22
ii. The amounts associated with each item within the reduction 23
conditions used for making that determination. 24
c. i. If the reduction conditions have been met for fiscal year 25
2024-2025, the General Assembly may take action to reduce the 26
rate in paragraph (f) of this subsection for th e taxable year 27
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beginning January 1, 2027. 1
ii. If the reduction conditions have not been met for fiscal year 2024 -2
2025 or the General Assembly does not take action to reduce the 3
rate in paragraph (f) of this subsection, the department shall 4
maintain the rate in paragraph (f) of this subsection for the taxable 5
year beginning January 1, 2027. 6
3. a. The Office of State Budget Director shall review the tax rate 7
reduction conditions for the fiscal year 2025 -2026 no later than 8
September 1, 2026. 9
b. After reviewing the tax rate reduction conditions under 10
subdivision a. of this subparagraph, the Office of State Budget 11
Director shall, no later than September 5, 2026, report to the 12
Interim Joint Committee on Appropriations and Revenue: 13
i. Whether the tax rate reduction conditions for the fiscal year 2025-14
2026 have been met; and 15
ii. The amounts associated with each item within the tax rate 16
reduction conditions used for making that determination. 17
c. i. If the tax rate reduction conditions have been met for fiscal 18
year 2025-2026, the General Assembly may take action to reduce 19
the rate in paragraph (f) of this subsection for the taxable year 20
beginning January 1, 2028. 21
ii. If the tax rate reduction conditions have not been met for fiscal 22
year 2025-2026 or the General Assembly does not take action to 23
reduce the rate in paragraph (f) of this subsection, the department 24
shall maintain the rate in paragraph (f) of this subsection for the 25
taxable year beginning January 1, 2028. 26
4. a. The Office of State Budget Director shall impleme nt an 27
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annual process to review and report future reduction conditions or 1
tax rate reduction conditions at the same time and in the same 2
manner for each fiscal year subsequent to the fiscal year 2024 -3
2025 and each taxable year subsequent to the taxable year 4
beginning January 1, 2027. 5
b. The department shall not implement an income tax rate reduction 6
without an action by the General Assembly. 7
c. The annual process shall continue until the income tax rate is 8
zero.] 9
(e)[(h)] For taxable years beginning on or af ter January 1, 2018, but before 10
January 1, 2023, the tax shall be five percent (5%) of net income. 11
(f)[(i)] For taxable years beginning after December 31, 2004, but[and] before 12
January 1, 2018, the tax shall be determined by applying the following rates to 13
net income: 14
1. Two percent (2%) of the amount of net income up to three thousand 15
dollars ($3,000); 16
2. Three percent (3%) of the amount of net income over three thousand 17
dollars ($3,000) and up to four thousand dollars ($4,000); 18
3. Four percent (4%) of the amount of net income over four thousand 19
dollars ($4,000) and up to five thousand dollars ($5,000); 20
4. Five percent (5%) of the amount of net income over five thousand 21
dollars ($5,000) and up to eight thousand dollars ($8,000); 22
5. Five and eight -tenths percent (5.8%) of the amount of net income over 23
eight thousand dollars ($8,000) and up to seventy -five thousand dollars 24
($75,000); and 25
6. Six percent (6%) of the amount of net income over seventy -five 26
thousand dollars ($75,000). 27
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(3) (a) The following tax credits, when applicable, shall be deducted from the result 1
obtained under subsection (2) of this section to arrive at the annual tax: 2
1. a. For taxable years beginning before January 1, 2014, twenty dollars 3
($20) for an unmarried individual; and 4
b. For taxable years beginning on or after January 1, 2014, and 5
before January 1, 2018, ten dollars ($10) for an unm arried 6
individual; 7
2. a. For taxable years beginning before January 1, 2014, twenty dollars 8
($20) for a married individual filing a separate return and an 9
additional twenty dollars ($20) for the spouse of taxpayer if a 10
separate return is made by the taxpay er and if the spouse, for the 11
calendar year in which the taxable year of the taxpayer begins, had 12
no Kentucky gross income and is not the dependent of another 13
taxpayer; or forty dollars ($40) for married persons filing a joint 14
return, provided neither spou se is the dependent of another 15
taxpayer. The determination of marital status for the purpose of 16
this section shall be made in the manner prescribed in Section 153 17
of the Internal Revenue Code; and 18
b. For taxable years beginning on or after January 1, 2014, and 19
before January 1, 2018, ten dollars ($10) for a married individual 20
filing a separate return and an additional ten dollars ($10) for the 21
spouse of a taxpayer if a separate return is made by the taxpayer 22
and if the spouse, for the calendar year in which the taxable year of 23
the taxpayer begins, had no Kentucky gross income and is not the 24
dependent of another taxpayer; or twenty dollars ($20) for married 25
persons filing a joint return, provided neither spouse is the 26
dependent of another taxpayer. The determ ination of marital status 27
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for the purpose of this section shall be made in the manner 1
prescribed in Section 153 of the Internal Revenue Code; 2
3. a. For taxable years beginning before January 1, 2014, twenty dollars 3
($20) credit for each dependent. No credi t shall be allowed for any 4
dependent who has made a joint return with his or her spouse; and 5
b. For taxable years beginning on or after January 1, 2014, and 6
before January 1, 2018, ten dollars ($10) credit for each 7
dependent. No credit shall be allowed for any dependent who has 8
made a joint return with his or her spouse; 9
4. An additional forty dollars ($40) credit if the taxpayer has attained the 10
age of sixty-five (65) before the close of the taxable year; 11
5. An additional forty dollars ($40) credit for tax payer's spouse if a 12
separate return is made by the taxpayer and if the taxpayer's spouse has 13
attained the age of sixty -five (65) before the close of the taxable year, 14
and, for the calendar year in which the taxable year of the taxpayer 15
begins, has no Kentu cky gross income and is not the dependent of 16
another taxpayer; 17
6. An additional forty dollars ($40) credit if the taxpayer is blind at the 18
close of the taxable year; 19
7. An additional forty dollars ($40) credit for taxpayer's spouse if a 20
separate return is made by the taxpayer and if the taxpayer's spouse is 21
blind, and, for the calendar year in which the taxable year of the 22
taxpayer begins, has no Kentucky gross income and is not the dependent 23
of another taxpayer; and 24
8. An additional twenty dollars ($20) credit shall be allowed if the taxpayer 25
is a member of the Kentucky National Guard at the close of the taxable 26
year. 27
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(b) In the case of nonresidents, the tax credits allowable under this subsection 1
shall be the portion of the credits that are represented by the ratio of the 2
taxpayer's Kentucky adjusted gross income as determined by KRS 141.019 to 3
the taxpayer's adjusted gross income as defined in Section 62 of the Internal 4
Revenue Code. However, in the case of a married nonresident taxpayer with 5
income from K entucky sources, whose spouse has no income from Kentucky 6
sources, the taxpayer shall determine allowable tax credit(s) by either: 7
1. The method contained above applied to the taxpayer's tax credit(s), 8
excluding credits for a spouse and dependents; or 9
2. Prorating the taxpayer's tax credit(s) plus the tax credits for the 10
taxpayer's spouse and dependents by the ratio of the taxpayer's 11
Kentucky adjusted gross income as determined by KRS 141.019 to the 12
total joint federal adjusted gross income of the taxpayer and the 13
taxpayer's spouse. 14
(c) In the case of a part -year resident, the tax credits allowable under this 15
subsection shall be the portion of the credits represented by the ratio of the 16
taxpayer's Kentucky adjusted gross income as determined by KRS 141.019 t o 17
the taxpayer's adjusted gross income as defined in Section 62 of the Internal 18
Revenue Code. 19
(4) An annual tax shall be paid for each taxable year as specified in this section upon 20
the entire net income except as herein provided, from all tangible propert y located 21
in this state, from all intangible property that has acquired a business situs in this 22
state, and from business, trade, profession, occupation, or other activities carried on 23
in this state, by natural persons not residents of this state. A nonres ident individual 24
shall be taxable only upon the amount of income received by the individual from 25
labor performed, business done, or from other activities in this state, from tangible 26
property located in this state, and from intangible property which has ac quired a 27
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business situs in this state; provided, however, that the situs of intangible personal 1
property shall be at the residence of the real or beneficial owner and not at the 2
residence of a trustee having custody or possession thereof. For taxable years 3
beginning on or after January 1, 2021, but before January 1, 2027, the tax imposed 4
by this section shall not apply to a disaster response employee or to a disaster 5
response business. The remainder of the income received by the nonresident shall 6
be deemed nontaxable by this state. 7
(5) Subject to the provisions of KRS 141.081, any individual may elect to pay the 8
annual tax imposed by KRS 141.023 in lieu of the tax levied under this section. 9
(6) A part -year resident is subject to taxation, as prescribed in su bsection (1) of this 10
section, during that portion of the taxable year that the individual is a resident and, 11
as prescribed in subsection (4) of this section, during that portion of the taxable year 12
when the individual is a nonresident. 13