By Tom LateK
Kentuckians can expect a drop in their personal income tax rate next year, due to legislation enacted by the General Assembly in the 2022 session that ties the tax rate on the income to the income of the general fund of the State.
The provisions of House Bill 8 would gradually reduce state personal income tax over a period of years and could even be eliminated entirely.
Before the rate can be lowered, the state must meet predefined triggers from a formula based on the excess of actual revenues over expenses plus the dollar value of a 1% tax cut on income. If this trigger is activated, personal income tax is reduced by half a percentage point.
Since the first drop is measured against fiscal year 2021 performance, Kentucky residents will see the rate drop to 4.5% on January 1, 2023. This would save Kentucky taxpayers approximately $500 million. .
The Department of Revenue, with the assistance of the Office of the State Budget Director, will review the reduction conditions and report the findings by September 5, 2022. Initially, the reduction conditions for fiscal years 21 and 22 will be considered. After that, each annual review will consider only the most recently completed fiscal year.
Actual revenues and appropriations for FY22 will not be known until mid-July, as the fiscal year closes on June 30. If the conditions are met and if the General Meeting decides during the 2023 Ordinary Session, on January 1, 2024, the rate will decrease again, this time from 4.5% to 4%.
“This is the second major tax overhaul in less than five years, and all indications are that it will be as successful as the first, which generated record economic growth and historic job creation,” the representative said. Jason Petrie, R-Elkton, the sponsor of the bill and co-chair of the Joint Interim Committee on Appropriations and Revenues. “We must also recognize that this means real relief for workers in Kentucky who are dealing with the impact of inflation.”
Another tax break for Kentuckians was announced Thursday by Gov. Andy Beshear, when he said he was issuing an emergency regulation to prevent a statutory two-cent-per-gallon fuel tax hike from the State.