A refundable tax credit buried in Kentucky's fiscal bill could put cash back in your pocket—if you know it exists.
Most Kentucky manufacturing owners have no idea that HB869, passed as part of the state's fiscal legislation, includes a refundable wage-based economic development tax credit that could directly reduce their tax liability by thousands of dollars annually.
Here's what the provision does: Approved companies in qualifying industries 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 rate depends on location—2.25% of wages for jobs in heritage counties, and 1.25% for jobs in other Kentucky counties. The credit is capped at $4 million annually across all eligible claimants statewide.
The credit applies to small businesses and larger manufacturers in designated industries that undertake qualifying economic development projects. Because it's refundable, it functions as a direct cash-equivalent offset against your Kentucky tax liability—meaning if the credit exceeds what you owe in taxes, you can receive the difference as a refund.
This is different from a standard tax deduction. A refundable credit is money back; a non-refundable credit only reduces what you owe.
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 apply. This means you cannot simply claim the credit on your 2026 return without first obtaining approval from the relevant state authority.
The provision is found in Section 1, Page 1 of HB869.
If you operate in a heritage county—typically economically distressed areas designated by the state—the 2.25% rate makes the credit more valuable. Even in other counties, a 1.25% credit on substantial payroll can add up quickly. For a manufacturer with $2 million in annual qualifying wages in a non-heritage county, that's $25,000 annually in potential tax relief.
The $4 million annual cap across all claimants is important context: credits are awarded on a first-come, first-served basis once the pool is exhausted, so early applicants after July 1, 2026 may have better access.
Because preliminary approval is required, you cannot wait until tax time to claim this. You'll need to understand eligibility requirements, document your qualifying wages, and submit for approval well before filing your 2026 return.
The refundable nature of this credit makes it worth investigating if you're planning capital investment, expansion, or new hiring in Kentucky. Unlike many tax incentives that only benefit profitable companies, a refundable credit can provide value even in lower-profit years.
For detailed eligibility requirements and the approval process, consult your tax advisor or contact the Kentucky Department of Revenue. A business-specific summary of HB869's manufacturing provisions is available through Kentucky trade associations.