House Bill 26-012

This act revises the state income tax system to provide additional tax relief for low- and moderate-income residents. Beginning with tax year 2027, taxable income up to $25,000 annually is subject to a zero percent state income tax rate, while tax rates for income between $25,001 and $330,000 remain as established under existing law. Beginning in tax year 2029, the $25,000 threshold must be adjusted annually for inflation. The act prohibits implementation from increasing the effective income tax liability of taxpayers earning less than $330,000 unless a future act of the General Assembly expressly authorizes such an increase.

This act creates a refundable working family tax credit for resident taxpayers with taxable income of $50,000 or less. The credit equals five percent of earned income, up to $1,000 per taxpayer, and remains refundable even when the taxpayer owes no state income tax. The working family credit is increased by $300 for each qualifying dependent child. The act separately creates a refundable child tax credit of $250 per qualifying dependent child, up to $1,000 per taxpayer. The Department of Revenue must provide simplified filing procedures and automatically calculate the working family credit through electronic filing systems when sufficient information is available.

This act establishes safeguards intended to preserve state revenue while protecting the new zero-percent tax bracket. If implementation is projected to reduce general fund revenue by more than two percent in a fiscal year, adjustments to upper-income marginal tax rates may occur only with approval of the General Assembly through the annual appropriations process and must be supported by a five-year fiscal analysis. Any such adjustment must prioritize preserving the tax exemption for qualifying lower-income taxpayers. The Department must also update employer withholding tables by October 1, 2026, so eligible taxpayers receive corresponding reductions in payroll withholding beginning January 1, 2027.

Beginning January 15, 2029, the Department of Revenue must submit annual reports for five years evaluating the act's effects on state revenue, different income groups, poverty and household financial stability, economic growth, administrative costs, and the number of taxpayers benefiting from the zero-percent bracket and refundable credits. This act was approved April 8, 2026, and takes effect on August 18, 2026 with the Department authorized to begin administrative preparation and rulemaking before that date.