FRANKFORT, Ky. — Kentucky had a revenue surplus of over $1 billion this fiscal year, triggering a cut in the state income tax in January 2023. 

What You Need To Know

  • The $1 billion surplus is the second highest in state history

  • House Bill 8 triggers a 0.5% reduction in the income tax rate

  • Republican lawmakers lauded the news as part of their plan to "modernize the tax structure" and create economic opportunity

  • Opponents of the law warned that it shifts the tax burden to lower-income Kentuckians

The state’s fiscal year ended on June 30 and the surplus is the second highest in Kentucky’s history, just shy of the $1.1 billion surplus last year. According to a new law — House Bill 8 — which passed the General Assembly earlier this year, the revenue surplus automatically triggers a 0.5% reduction in income tax that will take effect the following January. That will bring Kentucky’s income tax rate to 4.5% beginning in January.

The bill calls for further incremental reductions in the income tax rate in subsequent years “if certain thresholds of total general fund receipts are exceeded.”

Republican lawmakers lauded the news as a part of their plan to “modernize the tax structure,” and create economic opportunity. “This is what happens when you commit to sound fiscal policies and responsible tax reforms in order to foster economic growth as we have over the past five years,” declared House Speaker David Osborne (R-Prospect).

Rep. Jason Petrie (R-Elkton) was the primary sponsor of the bill and serves as the co-chair of the Interim Joint Committee on Appropriations and Revenue. “We’ve been intentional in every step and the results of these efforts can be measured in this surplus,” he said. “These resources belong to the people of Kentucky and they expect and deserve better.”

Republicans say their goal is to eliminate income tax completely. While HB 8 creates a system for reducing income tax, it also creates new taxes on certain goods and services, such as electric vehicles and ride-sharing services like Uber.

Democrats opposed the bill during General Assembly, claiming that it would primarily benefit wealthy Kentuckians. “It just shifts the brunt of the tax burden from the higher earners to the lower earners,” said Rep. Al Gentry (D-Louisville).

Gov. Andy Beshear vetoed HB 8 but the House and Senate, where Republicans have a supermajority, overrode the governor’s veto. It was one of over 200 laws that went into effect in Kentucky this year.