The Office of State Budget Director reported last week General Fund receipts for fiscal year 2026 (FY26) totaled $15,975.5 million, a 1.7 percent increase over the prior fiscal year. The official revenue estimate determined in December 2025 called for a $156 million revenue shortfall. Instead revenues came in $320.6 million more than originally budgeted and exceeded the December 2025 official revenue estimate by $476.6 million, indicating better than expected performance of Kentucky’s economy.
The final budget surplus amount for FY26 will be known once the accounting records for expenditures are completed later this month. Road Fund revenues totaled $1,821.9 million, 2.2 percent less than the FY25 total. Compared to the originally budgeted FY26 Road Fund estimate of $1,894.3 million, actual revenues fell short of the estimate by $72.4 million, and are less than the December 2025 official revenue estimate by $22.1 million.
Surplus revenues in the General Fund are largely tied to the sales tax and the individual income tax. For the year, sales tax receipts were 6.4 percent higher than the prior year. Performance of the sales tax improved in each quarter throughout FY26, with percentage growth of 3.9, 6.7, 7.2, and 8.0 percent, respectively for the four quarters.
Individual income tax receipts rose 4.6 percent in FY26 on the strength of estimated payments and net returns. Receipts for the year were $247.3 million more than FY25 collections. Estimated payments grew 29.4 percent. Individual income tax revenues increased 8.7 percent in the first six months of the year before easing over the next two quarters due to the tax rate cut from 4.0 percent to 3.5 percent that became effective on January 1, 2026. Withholding collections grew by 6.1 percent in the first half of the year. After the 12.5 percent tax rate cut, withholding collections fell only 6.3 percent in the second half of the year. For the year withholding collections declined by 0.4 percent.
State Budget Director John Hicks remarked that “General Fund growth of 6.2 percent in June capped off a very strong fourth quarter when receipts climbed 7.2 percent. The growth rates for the sales and income taxes, our largest revenue sources, and better than expected business tax collections, reflect strength in the earnings of both Kentuckians and Kentucky businesses. The FY26 annual growth rate of 1.7 percent outperformed the official estimate which called for a 1.3 percent decline.”
Table 1 compares General Fund collections to the official and enacted estimates.
Actual General Fund receipts exceeded the enacted estimates in five of the eight major accounts with one account hitting the estimate exactly. Actual receipts were within 2.0 percent of the FY26 enacted General Fund estimates.
A summary of General Fund collections for FY26 and FY25 is shown in Table 2. For the year, receipts grew 1.7 percent, or $272.3 million over FY25.
Individual Income Tax:
Individual income tax receipts rose 4.6 percent on the strength of declarations and net returns. Receipts for the year were $247.3 million more than FY25 collections. Among the accounts, declarations grew by $100.6 million, net returns grew by $153.6 million, and withholding and Pass-Through Entity tax revenue were essentially flat. Withholding collections grew by 6.1 percent in the first half of the year. After the January 2026 12.5 percent tax rate cut, withholding collections fell only 6.3 percent in the second half of the year. For the year withholding collections declined by 0.4 percent.
Sales and Use Taxes:
Sales and use tax receipts were 6.4 percent higher than FY25 levels on growth of $375.3 million. The 6.0 percent leap in sales tax collections in FY26 breaks a streak of declining growth in fiscal years 2024 and 2025, where growth was a modest 4.1 percent in FY24 followed by 0.3 percent in FY25.
Business Taxes:
Combined corporation income and the Limited Liability Entity taxes (LLET) collections fell 21.9 percent, or $401.8 million, compared to last year, but were still better than estimated. The drop in revenues can be attributed to unusually high nonrecurring estimated payments received last year.
Property Taxes:
Property tax receipts rose 1.6 percent in FY26 on the strength of real property which grew by nearly $16 million. Property tax receipts can vary greatly due to timing issues in the billing and collection cycle.
Cigarette Taxes:
Revenues from the cigarette tax reversed a five-year slide and rose 1.1 percent, or $2.6 million, in FY26. Collections fell in the first and fourth quarters but growth in the middle six months of the year more than compensated for those declines.
Coal Severance Taxes:
After declining sharply over the past two years, coal severance collections grew 12.3 percent in FY26. All three categories of severance taxes exceeded the official estimates. Coal Severance tax collections in FY26 were $63.0 million, $7.9 million higher than the official estimate of $55.1 million.
Lottery and Other Revenues:
Collections from the Kentucky Lottery Corporation rose $19.3 million, or 5.5 percent for the year just ended. The “other” category, which includes multiple taxes and fees such as inheritance taxes, gross receipts and excise taxes, and insurance premium taxes grew 0.7 percent for the year.
Income on Investments:
General Fund income on investments totaled $244.1 million, $78.9 million lower than FY25. Declining balances led to the drop in receipts.
Road Fund
Road Fund revenues for FY26 totaled $1,821.9 million, a decrease of 2.2 percent from the previous fiscal year. Total receipts were $41.6 million less than FY25 levels, with a 1.4 cent tax rate reduction contributing to lower motor fuels tax collections. Revenues grew narrowly in the first two quarters of the year before dropping 4.6 percent in the second half of FY26. Growth rates for the four quarters were 0.1 percent, 0.3 percent, -2.0 percent and -6.8 percent, respectively.
Table 3 compares Road Fund collections to the official and enacted estimates.
Motor fuels tax revenues had the largest change when compared to the budgeted estimate and the prior year, primarily because the actual tax rates were 4.1 cents lower than the rates in the budgeted estimate and were 5.0 percent lower than in FY25.
Motor vehicle usage tax collections are the second-largest revenue source in the Road Fund making up 40 percent of Road Fund revenues. Collections grew by 2.0 percent over the prior year. The $734.2 million annual amount set another all-time high.
Motor vehicle license receipts rose by 3.3 percent over the prior year.
Road Fund collections for FY26 were 2.2 percent less than the FY25 revenues as shown in Table 4.
Only three of the seven of the Road Fund major accounts exceeded FY25 totals; motor vehicle usage, motor vehicle license and weight distance. These accounts combined to grow by $19.4 million while the remaining accounts declined by $61.0 million. The largest of the declining revenue sources was motor fuels taxes, which dropped by $45.7 million.
Visit osbd.ky.gov to read the full report.
Office of State Budget Director