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Kentucky personal income tax rate expected to fall half a percentage point in 2023

Stu Johnson

Officials say economic conditions in Kentucky can allow for the reduction of the state’s income tax rate from 5% to 4.5%. Chris McDaniel is the Senate Budget Committee Chair. He said the State Finance and Administration Cabinet certified those conditions this week. The northern Kentucky lawmaker doesn’t envision this drop in itself to greatly change the job market

“I don’t think a half of a point will necessarily affect that, but if, in ten years we’re down to the point of one or two percent or zero percent income tax, then I think it will have more of an impact at the point in time,” said McDaniel.

Lawmakers approved the tax policy earlier this year. McDaniel said it wasn’t a given that the decision would be made this soon.

“There were some very, very, very outside potentials that it wouldn’t happen, but we were fairly confident that it would and were fairly confident that next years will be met as well. But, that’s not a hundred percent. You know the economy can do all kinds of things,” said McDaniel.

McDaniel said state lawmakers will need to take action on the personal income tax reduction for it to occur. He anticipates it to be retroactive to January first of 2023.

Dustin Pugel is policy director for the Kentucky Center for Economic Policy. He expressed concern that a continued eroding of the tax base would mean less support to provide critical services to the state.

Stu has been reporting for WEKU for more than 30 years.
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