A new refundable tax credit buried in HB869 could offset Kentucky income tax liability for qualifying retail businesses—but only if you know it exists.
Most Kentucky retail owners have no idea that HB869, passed as part of the state's fiscal legislation, contains a wage-based economic development tax credit that could put money directly back into their businesses. The provision is real, it applies to small businesses, and it takes effect for tax years beginning January 1, 2026—but awareness is nearly zero.
Under Section 1 of HB869, approved companies in qualifying industries can claim a refundable income and LLET (Limited Liability Entity Tax) tax credit based on wages paid to full-time employees at qualifying economic development projects. This is not a deduction—it's a refundable credit, meaning it can offset your actual tax liability and potentially result in a cash payment from the state.
The credit rate depends on location:
There is a statewide annual cap: the total credit available to all claimants cannot exceed $4 million per year. This is a pool, not a per-business limit, so early applicants and those in heritage counties will have an advantage.
The credit is available to approved companies, including small businesses, operating in qualifying industries at qualifying economic development projects. The exact list of qualifying industries and projects will be defined through the approval process—this is critical information to confirm with the Kentucky Department of Revenue or your tax advisor before making hiring or expansion decisions.
The credit applies to taxable years beginning on or after January 1, 2026. However, preliminary approval is required, and applications cannot be submitted until after July 1, 2026. This means you cannot claim the credit retroactively for 2026 taxes unless you receive preliminary approval in time—plan accordingly.
The timing is tight: if you're planning to hire or expand in 2026, you need to understand whether your business and location qualify, and you should be prepared to apply for preliminary approval as soon as the window opens.
If your retail operation qualifies, this credit effectively reduces your state tax burden by a percentage of wages paid to full-time employees. For a business paying $500,000 annually in wages in a heritage county, that's a potential $11,250 annual credit. For multiple locations or larger payrolls, the benefit scales accordingly—up to the $4 million statewide cap.
The refundable nature matters: unlike a non-refundable credit that only reduces taxes owed, a refundable credit can generate a cash payment if it exceeds your tax liability, making it particularly valuable for growing businesses.
Contact the Kentucky Department of Revenue to confirm whether your industry and location qualify. If you're planning significant hiring or expansion in 2026, factor this credit into your financial planning. The window for preliminary approval opens July 1, 2026, and the $4 million annual pool will fill on a first-come, first-served basis.
Source: HB869, Section 1, Page 1; effective for taxable years beginning January 1, 2026, with preliminary approval required after July 1, 2026.