Your paycheck just got bigger: what else changed in Kentucky on New Year's Day

Several new laws took effect in Kentucky on January 1, 2026.

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Kentucky residents have several new laws to consider as we enter a new year- including everything from our paychecks to how companies handle our personal information. The changes, passed during the 2025 legislative session and signed by Governor Andy Beshear, have wide-ranging impacts.

New state income tax rate

Kentucky's individual income tax rate dropped from 4% to 3.5% on January 1, marking another step in Republican lawmakers' goal to eventually eliminate the state income tax entirely.

State Representative Jason Nemes, R-Louisville, expressed confidence that complete elimination could happen within eight to 10 years through incremental cuts.

However, Governor Beshear has pointed to the half-percentage point cut as a contributor to the state's 2026 budget deficit. Earlier in 2025, Beshear estimated the reduction would decrease the state's general fund revenues by $718 million annually once fully implemented. The general fund pays for most state services, including education, health care, and public safety.

In addition to the general tax cut, income earned by minors is now exempt from state income tax. The law aims to encourage early workforce participation and help young people build savings or contribute to educational expenses. The change is expected to benefit families with teenagers working part-time jobs, participating in apprenticeships, or earning income during summer months.

Tobacco and vaping product licensing

Senate Bill 100, signed into law by Governor Beshear in March 2025, created the Division of Tobacco, Nicotine, and Vapor Product Licensing. Any retailer in Kentucky that sells alternative nicotine products, tobacco products, or vapor products must now obtain a state license.

The licensing requirement, which had a January 1 deadline, carries stiff penalties and fines for businesses that don't comply. State officials say the law responds to growing concerns from parents, teachers, and youth advocates about how easily young people can access nicotine and vaping products.

The law also allows Kentucky's Alcoholic Beverage Control agency to conduct unannounced visits to smoke shops to ensure they are not selling to anyone under 21 and are only selling FDA-approved vape products.

Consumer data privacy regulations

Kentucky joined 18 other states in establishing comprehensive consumer data privacy protections with the Kentucky Consumer Data Protection Act.

The law grants Kentucky residents five key rights: accessing their personal data, correcting inaccurate information, deleting personal data, obtaining portable copies of their data, and opting out of targeted advertising, data sales, and certain profiling activities.

Businesses operating in Kentucky must now provide accessible methods for consumers to submit data requests without requiring new account creation. Companies have 45 days to respond to requests, with one possible 45-day extension, and must provide up to two free responses per year.

THC-infused drink regulations

In Kentucky, THC-infused drinks are now banned at fairs, festivals, bars, and restaurants, with sales limited to licensed liquor stores only. Senate Bill 202, which banned the beverages from bars and restaurants in June 2025, also caps seltzers to 5 milligrams of THC per container and requires liquor stores to get an additional license to sell them.

The law allows ABC to regulate the sale of hemp seltzers, and single can sales have been banned at bars and restaurants. However, people can still purchase the hemp seltzers at Kentucky liquor stores, and purchasers must be at least 21 years old.

Looking ahead

As lawmakers return to Frankfort next week to write a budget for 2026-28, the fiscal impact of these new laws will be a central concern. The Kentucky Center for Economic Policy has warned that with the income tax cut taking effect and federal stimulus dollars waning, the state faces "serious budget crunches" ahead.

The center urged officials to consider the distributional and fiscal consequences of further permanent tax reductions as they balance competing priorities for education, healthcare, and public safety funding.

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