A wage-based tax credit buried in Kentucky's fiscal bill could put cash back in your business—if you know it exists.
Most Kentucky auto service owners have no idea that HB869—a bill focused on state fiscal matters—contains a provision that could directly reduce their tax liability. The provision creates a refundable wage-based economic development tax credit, and qualifying businesses in the auto service sector could claim it starting in 2026.
Under Section 1 of HB869, approved companies can claim a refundable income tax or Limited Liability Entity Tax (LLET) credit based on wages paid to full-time employees at qualifying economic development projects. The credit is calculated as a percentage of those wages:
Because it's refundable, this isn't just a credit that reduces what you owe—it can result in a cash payment from the state if the credit exceeds your tax liability. The total available statewide is capped at $4 million annually across all claimants.
The credit is available to approved companies in qualifying industries, including small businesses. Auto service operations that meet the economic development project criteria and employ full-time workers in eligible counties may be candidates. The exact definition of "qualifying industries" and "economic development projects" is determined by the state, so verification with the Kentucky Department of Revenue or a tax professional is essential before planning around this credit.
Timing matters here. The credit applies to taxable years beginning on or after January 1, 2026. However, preliminary approval is required after July 1, 2026 for the wage credit to be claimed. This means you cannot wait until tax time in 2027 to apply—you'll need to seek preliminary approval during the window that opens in mid-2026 to claim the credit for 2026 tax year wages.
Missing this deadline could cost you a year of eligibility, so marking your calendar now is prudent.
If your auto service operation qualifies, this credit effectively lowers your state tax burden by a percentage of payroll—a direct cash-equivalent offset. For a small business with several full-time employees, the annual benefit could be meaningful. The refundable nature makes it especially valuable: if the credit exceeds what you owe in state income tax or LLET, Kentucky sends you the difference.
The $4 million annual cap across all claimants is worth noting. If demand is high, credits may be allocated on a first-come, first-served or proportional basis, so early application after July 1, 2026 could be advantageous.
Determine whether your operation meets the criteria for a qualifying economic development project in your county. Contact the Kentucky Department of Revenue or consult a tax professional familiar with HB869 to confirm eligibility and understand the preliminary approval process. Documentation of full-time employees and wages will be required.
Source: HB869—AN ACT relating to fiscal matters and declaring an emergency, Section 1, Page 1.