Earlier this month, Gov. Andy Beshear signed House Bill 1, a state spending plan that reduces income tax rates and helps small business owners keep more of their money.

“Our small business members applaud the General Assembly for their fiscal restraint and ability to plan for the long term,” NFIB State Director Tom Underwood said.

HB 1 changes Kentucky’s tax laws by cutting the individual income tax rate. For taxable years beginning on or after Jan. 1, 2024, the tax rate will drop to 4%, and in 2026, it will go down again to 3.5%.

“Lower tax rates mean small business owners will have more money to improve their businesses, hire workers, and expand,” Underwood said. Most small businesses in Kentucky are organized as pass-through entities, meaning any profits pass through the business to the owner, who pays taxes at the individual rate.

HB 1 allows tax cuts if Kentucky’s finances are strong enough. The state must have a solid savings fund and enough income to cover its expenses. If these conditions are met, more tax cuts may happen in the future.

“This is a commonsense approach to easing the financial pressure on taxpayers while ensuring that Kentucky’s budget is balanced and that our economy is strong,” Underwood said.