A new refundable tax credit buried in Kentucky's fiscal bill could offset your payroll taxes—if you meet the requirements and apply on time.
Most Kentucky restaurant owners don't realize that HB869, passed as an economic development measure, includes a refundable wage-based tax credit that could directly reduce what they owe the state. The provision isn't widely publicized, but it's real, and the window to qualify has specific deadlines.
Under HB869 (Section 1, Page 1), approved companies—including small businesses in qualifying industries—can claim a refundable income and Limited Liability Entity Tax (LLET) credit. The credit is calculated as a percentage of wages paid to full-time employees at qualifying economic development projects.
The percentage depends on location:
Because it's refundable, you can claim it against your tax liability dollar-for-dollar. If the credit exceeds what you owe, you may receive the difference as a refund.
The credit is capped at $4,000,000 annually across all claimants statewide. This is a shared pool, not a per-business limit, so early applicants have an advantage once the program opens.
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 valid.
This means:
Restaurants and other small businesses in qualifying industries may be eligible, but "qualifying economic development projects" has a specific definition under the statute. Not every restaurant will qualify automatically.
If your restaurant operates in a heritage county and meets the project criteria, a 2.25% wage credit on full-time payroll could be meaningful. For example, a restaurant with $500,000 in annual full-time wages could potentially claim $11,250 annually—assuming the statewide pool hasn't been exhausted.
The refundable nature is key: this isn't a deduction or a deferral. It's a direct offset to your state tax liability, with potential cash back if the credit exceeds what you owe.
Start now by confirming whether your location qualifies as a heritage county and whether your business model fits the definition of a qualifying economic development project. Mark July 1, 2026, as the date preliminary approval applications open. Because the $4 million pool is shared statewide, early applicants will have priority.
Contact the Kentucky Department of Revenue or your tax advisor for guidance on eligibility and the application process when the window opens.
Source: HB869—AN ACT relating to fiscal matters and declaring an emergency, Section 1, Page 1.