A wage-based tax credit buried in Kentucky's fiscal bill could mean real cash for your firm—if you know it exists and meet the timeline.
Most Kentucky professional services owners have no idea that HB 869—a bill focused on state fiscal matters—contains a tax credit that could put cash directly into their company's account. Unlike typical tax credits that simply reduce what you owe, this one is refundable, meaning you can receive money even if your tax liability is smaller than the credit itself.
Section 1 of HB 869 creates a wage-based economic development tax credit administered by the Kentucky Economic Development Finance Authority (KEDFA). Here's the mechanics:
If your firm is approved as an "approved company" and operates a qualifying project, you earn a credit equal to a percentage of wages paid to full-time employees. The percentage depends on location:
The credit applies to both income tax and the Limited Liability Entity Tax (LLET). Because it's refundable, if your credit exceeds your actual tax bill in a given year, the state sends you the difference as a cash payment.
The credit applies to taxable years beginning on or after January 1, 2026. However, there's a critical gate: your company must receive preliminary approval from KEDFA after July 1, 2026 to qualify.
This means you cannot claim the credit retroactively for 2026 taxes unless you secure that preliminary approval. The approval process and specific eligibility criteria—such as what qualifies as an "approved company" or "approved project"—are administered by KEDFA, so professional services firms should contact the authority directly for application details and requirements.
Professional services firms—accounting, legal, consulting, engineering, architecture, and similar fields—often operate in heritage counties or rural areas where economic development incentives are targeted. If your firm expands payroll or relocates operations to a qualifying location, this credit could offset a meaningful portion of your state tax burden or generate a direct payment.
The refundable nature is significant. A growing firm that hires aggressively might have a credit larger than its tax liability in a given year, especially in the early stages of expansion. That excess becomes a cash refund.
However, the approval requirement means this isn't automatic. You'll need to work with KEDFA before July 1, 2026, to lock in eligibility for 2026 and beyond.
If your professional services firm has plans to expand payroll or considers operations in Kentucky's heritage counties, it's worth understanding this credit now. Contact KEDFA for preliminary approval details and eligibility requirements specific to your industry and location. The window opens July 1, 2026—missing it means losing the credit for 2026 taxes.
Source: HB 869, Section 1, Page 1; Kentucky General Assembly.