A refundable tax credit buried in HB869 could put cash in your pocket based on wages you're already paying—but only if you understand the rules and timeline.
Most Kentucky manufacturers don't realize that HB869, signed into law as a fiscal bill, contains a wage-based economic development tax credit that could generate cash payments to their company—even if they owe no state income tax that year. This is the refundable provision that makes it different from a standard tax deduction.
HB869 creates a new refundable income and LLET (Limited Liability Entity Tax) credit for approved companies. The credit equals 2.25% of wages paid to full-time employees at projects located in Kentucky's heritage counties, or 1.25% in all other counties.
Because it is refundable, the credit can result in a cash payment from the state that exceeds your actual tax liability. For example, if your company qualifies and owes $50,000 in state income tax but generates $150,000 in eligible wage credits, you could receive a $100,000 refund.
To claim the credit, your company must be designated an "approved company" by the Kentucky Economic Development Finance Authority (KEDFA). Preliminary approval from KEDFA is required after July 1, 2026, to qualify for the credit.
The credit applies to taxable years beginning on or after January 1, 2026. This means your 2026 tax year is the earliest eligible period—but you cannot claim it without KEDFA preliminary approval after the July 1, 2026 date.
For manufacturers with significant payrolls, this credit can meaningfully reduce your effective tax burden. A company with $10 million in qualifying wages in a heritage county could claim $225,000 annually. The refundable nature makes it especially valuable for growing firms or those with lower current tax liability.
The distinction between heritage and non-heritage counties also matters: if your facility is in a heritage county, you receive a full percentage point more credit (2.25% vs. 1.25%), which could be a factor in expansion or relocation decisions.
July 1, 2026: The earliest date KEDFA can grant preliminary approval. Credits claimed for 2026 tax year must have approval after this date.
January 1, 2026 onward: The taxable years eligible for the credit.
The provision is found in Section 1, Page 1 of HB869.
If your manufacturing operation has a substantial payroll, it's worth understanding whether your company and location qualify. The KEDFA application process and specific wage documentation requirements will determine eligibility. Consulting with your tax advisor or KEDFA directly before year-end 2025 can help you plan whether to pursue preliminary approval.
This explainer is based on the text of HB869 as enacted. For a detailed, business-specific analysis tailored to your operation, contact your state trade association or tax professional.