AN ACT relating to state service employee compensation.

HB 338 amends Kentucky's tax code to exclude all wages earned by state service employees from individual income tax starting January 1, 2026. This directly affects full-time, part-time, and interim employees in Kentucky's executive, legislative, and judicial branches (excluding members of the General Assembly). The bill changes the tax calculation by adding a new exclusion under KRS 141.019, removing state employee wages from taxable income. This is a concrete policy change that will reduce the state income tax burden for affected public employees beginning in 2026.