This week the State Budget Director announced that the state had met “revenue conditions” to allow the legislature to pass further reductions of the state income tax. In short, the income tax could fall to 3.5 percent as early as January of 2026. This rate will put Kentucky in a strong position to compete with neighboring states.

41 states in the U.S. collect income taxes and Kentucky is one of 12 that use a flat income tax structure. Nine states, including Tennessee, do not levy income taxes.

Work began to lower the income tax in 2022 and since then the rate has been lowered from 5 to 4 percent. These latest developments will allow for a further reduction of .5 percent,  bringing Kentucky below the taxing rates of Missouri, Illinois, Indiana, West Virginia and Virginia, and in line with Ohio.

GLI has been a leading supporter of legislator’s strategy to move the state away from a production-based tax model which will help make Greater Louisville more competitive in attracting talent and businesses to our region. In an ever-globalizing world where someone can work from any location, it’s critical that we create a region where people can keep more money from their paycheck in their pockets.

The General Assembly continues to take bold steps to make the Commonwealth more competitive and GLI looks forward to supporting legislation, like local tax reform, in future sessions to reach our full potential.