Kentucky Senate Passes HB 1 to Implement Federal Education Tax Credit Scholarship Program

Bill Aligns Kentucky Law With New Federal School Choice Tax Credit and Awaits Governor Beshear’s Signature

Feb 28, 2026

On the Kentucky Senate floor this week, lawmakers gave final passage to House Bill 1 and sent it to Governor Andy Beshear for consideration. According to the official legislative record on the Kentucky General Assembly website, HB 1 cleared the Senate after prior approval in the House and concurrence steps, completing the General Assembly’s role under Section 46 of the Kentucky Constitution. The bill can be reviewed in full text and action history at the Kentucky Legislature’s official portal:
https://apps.legislature.ky.gov/record/26rs/hb1.html

The enrolled version of HB 1 incorporates Kentucky into a newly authorized federal education tax-credit scholarship program. The measure directs state agencies to recognize and administer scholarship contributions eligible for federal tax treatment under federal law. The Kentucky Department of Revenue and the Kentucky Department of Education are identified as implementing agencies in the bill text.

The Senate vote used standard legislative authority under the Kentucky Constitution, which grants the General Assembly power to enact laws governing taxation, education policy implementation, and state administrative duties. Once transmitted to the Governor, the bill enters the executive review phase under Section 88 of the Kentucky Constitution. The Governor may sign the bill into law, veto it, or allow it to become law without signature.

HB 1 Statutory Amendments to Kentucky Tax and Education Law

HB 1 amends specific provisions of the Kentucky Revised Statutes to permit participation in the federal education tax-credit scholarship program. The enrolled bill text specifies changes to tax administration procedures under KRS Chapter 131 and directs conformity with federal tax treatment under the Internal Revenue Code.

The bill authorizes scholarship-granting organizations to receive qualifying contributions that generate federal tax credits for donors. It establishes reporting requirements to the Kentucky Department of Revenue and directs the Kentucky Department of Education to coordinate eligibility verification for participating students.

The bill text outlines eligibility criteria tied to federal definitions and income thresholds. It requires scholarship organizations operating in Kentucky to register with state authorities, file annual reports, and maintain compliance with financial auditing standards. These reporting requirements are enumerated in the statutory language to ensure conformity with Kentucky nonprofit and tax oversight provisions.

The legislative release announcing final passage describes the measure as implementing the federal tax-credit scholarship mechanism in Kentucky. The federal program itself operates through amendments to the Internal Revenue Code, allowing donors to receive federal tax credits for contributions to approved scholarship organizations. HB 1 does not create a new state-funded appropriation. Instead, it establishes state-level administrative recognition and compliance infrastructure so Kentucky residents and organizations can participate in the federal program.

Kentucky Department of Revenue and Kentucky Department of Education Administrative Duties

HB 1 assigns administrative authority to the Kentucky Department of Revenue to oversee tax-related filings and compliance. This includes processing relevant documentation, verifying conformity with federal tax provisions, and maintaining records of registered scholarship-granting organizations.

The Kentucky Department of Education is directed to confirm student eligibility parameters defined by the bill and applicable federal law. The bill references existing Kentucky statutory authority governing student enrollment, private school operations, and reporting standards under KRS Chapter 156.

The implementation timeline depends on the Governor’s action and the bill’s effective date clause. If signed into law, agencies must promulgate any necessary administrative regulations under KRS Chapter 13A. That process includes public notice, filing with the Legislative Research Commission, and review by the Administrative Regulation Review Subcommittee.

Kentucky’s Board of Education does not directly administer the scholarship funds under HB 1. Instead, the bill relies on independent scholarship-granting organizations subject to state registration requirements. The state’s role centers on recognition, compliance verification, and regulatory oversight rather than direct distribution of funds.

Interaction with Kentucky Constitution Section 184 and Prior Litigation

Kentucky’s Constitution, Section 184, addresses the provision of common schools funded by public revenue. In 2021 and 2022, litigation over state-level education tax-credit programs reached the Kentucky Supreme Court. In Cameron v. Beshear, 628 S.W.3d 61 (Ky. 2021), the Court evaluated constitutional issues related to education funding mechanisms and ballot initiatives involving school funding and scholarship programs. The decision text can be reviewed through the Kentucky Court of Justice archives:
https://kycourts.gov/Courts/Supreme-Court/Opinions/2021-SC-0386.pdf

HB 1 differs from prior state-funded proposals in that it relies on a federal tax-credit structure rather than a direct state tax-credit or appropriation. The legislative record does not indicate an amendment to Section 184. Instead, the bill positions Kentucky within the federal program authorized through federal statute.

Because the federal tax-credit mechanism operates through federal revenue policy, Kentucky’s statutory amendments primarily address conformity and administrative recognition. The interaction between federal tax credits and Kentucky constitutional education provisions may be subject to future judicial review depending on implementation and any legal challenges filed.

Kentucky courts have previously evaluated scholarship programs in the context of constitutional provisions. Any future litigation would proceed through the Franklin Circuit Court or other appropriate venue, with appellate review potentially reaching the Kentucky Supreme Court.

Budgetary and District-Level Funding Considerations

HB 1 does not appropriate General Fund dollars in its text. The Kentucky enacted budget for the current biennium, available through the Legislative Research Commission:
https://apps.legislature.ky.gov/record/26rs/hb1.html

does not include a new line-item appropriation connected directly to this federal scholarship program. The bill’s fiscal note, available in the Legislative Research Commission bill file, addresses potential administrative costs and revenue considerations related to conformity and oversight.

Kentucky public school districts are funded primarily through the Support Education Excellence in Kentucky (SEEK) formula under KRS 157.360. That formula allocates state education dollars based on average daily attendance and other weighted factors. The SEEK statute can be reviewed here:
https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=48830

Changes in student enrollment can affect SEEK allocations over time. The bill text itself does not amend the SEEK formula. Any enrollment changes resulting from scholarship participation would be reflected in future average daily attendance calculations, which are reported annually by school districts and certified by the Kentucky Department of Education.

Districts in Jefferson County Public Schools, Fayette County Public Schools, Oldham County Schools, and other systems would report enrollment changes through existing administrative channels. The Kentucky Department of Education would incorporate those figures into subsequent SEEK distributions.

The timeline for any enrollment-related fiscal adjustments depends on student participation rates, reporting cycles, and annual budget enactment by the General Assembly.

Federal Tax Credit Authority Under the Internal Revenue Code

The federal authority underpinning the program referenced in HB 1 arises from amendments to the Internal Revenue Code enacted by Congress. The relevant federal statute can be reviewed through Congress.gov:

https://www.congress.gov/

The federal provision authorizes tax credits for contributions to certified scholarship organizations that provide tuition assistance to eligible students. The credit applies against federal income tax liability, subject to caps and reporting requirements defined in federal law.

Kentucky’s role under HB 1 is to align state-level recognition and administrative processes with the federal program’s eligibility standards. The bill text references conformity with federal definitions and directs Kentucky agencies to maintain compliance documentation consistent with Internal Revenue Service requirements.

Donors seeking to claim the federal tax credit would file documentation with the Internal Revenue Service. Scholarship organizations operating in Kentucky would maintain records necessary to support donor claims and comply with both federal and state reporting rules.

Share This Article

Procedural Next Steps Under the Kentucky Constitution

HB 1 now awaits action by Governor Andy Beshear under Section 88 of the Kentucky Constitution. The Governor may sign the bill into law, veto it with written objections, or allow it to become law without signature after the constitutional review period expires.

If vetoed, the General Assembly may attempt an override under Section 88, which requires a constitutional majority vote in both chambers. The Legislative Research Commission will publish the enrolled bill and any veto message on its official site.

If enacted, the effective date clause in HB 1 governs when the law takes effect. State agencies would then begin drafting administrative regulations as necessary under KRS Chapter 13A. That rulemaking process includes public comment periods and committee review.

The first decision point approaching is the Governor’s action deadline. The second decision point, if enacted, is agency promulgation of implementing regulations and the registration of scholarship organizations with the Kentucky Department of Revenue.

Dispatches from Kentucky

Discussion about this post

Ready for more?