Comprehensive Guide to Kentucky Payroll Taxes

As an employer in Kentucky, you are responsible for managing various complex federal and state payroll taxes and employer withholdings. These include unemployment insurance, state income tax, unemployment tax, local taxes and workers’ compensation. 

This guide provides a detailed and structured overview of these rules, regulations, and taxes to ensure Kentucky employers remain compliant.

Overview of payroll taxes

Kentucky employers are responsible for managing federal income tax, US FICA tax (Social Security and Medicare), and state payroll taxes, as well as any local occupational or occupational license taxes that Kentucky cities and counties levy on a percentage of net earnings or net profits. Combined, these taxes are known as employer payroll taxes or payroll withholding.

Employers must calculate gross tax and withholding tax per pay period using a formula provided by the state. However, before paying or remitting taxes, you must obtain an employer identification number (EIN) from the IRS and collect a Withholding Certificate Form K-4 from each employee.

Nonprofit organizations in Kentucky can qualify for exemptions from corporate income tax, sales and use tax, and property tax but are subject to payroll taxes.

As of 2022, Kentucky requires all payroll taxes to be paid electronically online here apart from unemployment taxes, which should be paid online here.

Paying unemployment insurance

Kentucky employers are responsible for paying unemployment insurance (UI) tax, also known as state unemployment insurance (SUI) on behalf of their employees.

UI is a national program managed on a state level that provides temporary financial assistance for individuals who are unemployed through no fault of their own. The Office of Unemployment Insurance administers UI tax in Kentucky.

Employers in Kentucky pay UI for each employee at a rate between 0.3% to 9% on a taxable wage limit of $11,400. This equates to a maximum tax payment of $1,026 per employee, per year. A 2.7% rate applies to new employers. UI Tax Payments are due quarterly on April 30, July 31, October 31, and January 31.

For more information on paying your unemployment insurance, you can visit the Kentucky Career Center online.

Withholding personal income tax from your Kentucky employee

As an employer in Kentucky, you need to calculate and withhold the correct amount of personal income tax (PIT) from your employee’s wages. Personal income tax, also known as individual income tax or state income tax, is a tax on the income of Kentucky residents and non-exempt non-residents to help fund the state's schools, roads, healthcare, and other services.

Kentucky has reciprocal tax agreements with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin. This means that employers do not need to withhold income tax for employees living in these states.

Employees pay PIT at a 4% flat rate on their full wage with a standard deduction of $3,160 in 2024. Employers are responsible for paying the deducted and withheld amount of personal income tax from eligible employees to The Kentucky Department of Revenue. Note that the Kentucky Department of Revenue's Audit Program conducts audits on businesses to ensure tax compliance.

The required filing frequency and deadlines vary based on the amount of PIT the employee contributes:

• Less than $400: Annual, due on January 31
• $400-$1,999: Quarterly, due on April 30, July 31, October 31, January 31
• $2,000-$49,999: Monthly, due on the 15th of the following month
• $50,000 or more: Semi-monthly, due on 10th and 25th of the same month

Employers can remit withheld tax using Kentucky’s online portal. The Kentucky Department of Revenue provides more information on paying the withheld amount.

Paying your Kentucky workers' compensation

Workers’ compensation is mandated by state law in Kentucky, even if you only have one Kentucky employee. Employers are responsible for paying for workers’ compensation, an insurance that covers medical benefits and offers financial assistance if an employee is injured while performing their job. 

Not only does workers’ compensation benefit the injured employee, but it also safeguards the employer against legal action. In Kentucky, workers’ compensation is typically purchased from a qualified commercial carrier.

Visit the Kentucky Education and Labor Cabinet for more information on finding a qualified commercial carrier.

Please be sure that you verify that your workers’ compensation insurance is compliant with the state’s regulations for workers’ compensation.

Simplify US payroll tax compliance with Deel

It’s important to be informed about unemployment insurance, personal income tax, and workers’ compensation, but these requirements are just the tip of the iceberg. Deel helps companies streamline the payroll process and ensure full compliance through our robust platform. 

Our comprehensive solution saves time and money when managing US and international payroll, ensuring that you remain compliant and mitigate risks.

Want to learn more? Request a demo from Deel today.