Payroll tax in Kentucky: What employers need to know [Updated 2024]

Whether you’re a small business owner or the leader of a huge corporation, there’s one thing every business has in common: taxes. From federal income tax to US FICA tax, like social security and Medicare taxes, employers have a lot to keep up with—and that doesn’t even account for state payroll taxes, which vary based on where your employees live.

In Kentucky, payroll taxes are relatively straightforward—the state employs a flat income tax rate that’s less complex to calculate than many other states. But for every new hire in Kentucky, you’ll need to know about more than just withholding tax—there are also state employer taxes to pay.

If you have employees in Kentucky, it’s time to master Kentucky state taxes—who pays what, how much, when, and to which state agency? Let’s dive in.

The 2 Kentucky payroll taxes

In Kentucky, there are two main types of payroll tax.

The Kentucky Department of Revenue collects income tax, which Kentucky employers submit on their employees’ behalf.

The Office of Unemployment Insurance collects unemployment tax, which is paid by employers.

​​​​​​​Kentucky Revised Statute Chapter 141 requires tax withholding for all employees who are paid wages (these can be hourly wages or annual wages). Whether the tax is paid by the employer or the employee, the employer is required to withhold it from the employee’s paycheck and submit it to the appropriate state agency on their behalf.

Unemployment insurance tax

The state unemployment tax (also known as SUI) provides temporary payments to Kentucky residents who lose their jobs through no fault of their own (for example, through layoffs). The tax rates and taxable wage base are set each year by the Kentucky State Legislature. New employers currently pay 2.7%.

Personal income tax

Personal income tax (PIT) helps fund Kentucky’s schools, roads, healthcare, and other important services and infrastructure. State income taxes are paid by employees, but income tax withholding is done by employers, who then remit the tax to the Kentucky Department of Revenue on their employees’ behalf. Kentucky has a flat rate for income tax, set each year by the Department of Revenue.

Kentucky withholding is pretty straightforward to calculate using a formula provided by the state. Using the tax rate, the standard deduction ($3,160 in 2024), and employee wages, you can calculate gross tax and withholding tax per pay period.

Even though calculating tax withholding is pretty simple in Kentucky, staying on top of state tax laws can be complex for businesses—especially if you have employees in multiple states. That’s where Rippling’s payroll software comes in. Rippling automatically calculates your taxes, submits your tax forms and payments, and keeps you compliant with federal, state, and local laws—freeing you up to focus on running your business. Rippling’s PEO can even handle registering and maintaining your state tax accounts, automating one more part of the payroll tax process.

Payroll tax due dates in Kentucky

Kentucky has different due dates for withholding tax and unemployment tax.

Due dates for income tax are determined by how much you pay each year. If the due date falls on a holiday or weekend, payment is due the following business day.

Unemployment tax is due quarterly, by the last day of the month following each quarter:

How to submit payroll taxes in Kentucky

Before you can submit payroll taxes in Kentucky, you need to do a few things:

• Obtain an employer identification number (EIN) from the IRS.
• Collect a Withholding Certificate Form K-4 (Kentucky’s version of a W-4) from each of your employees.

Once the paperwork is in order, you’re ready to start making payments. Here’s how.

File electronically

As of 2022, Kentucky requires all filers, regardless of their filing frequency, to pay their payroll taxes electronically online. The system is simple, fast, and secure—just go to wraps.ky.gov to register and pay.

Paying unemployment taxes is similarly straightforward—go to kewes.ky.gov and click “Pay by EFT/Credit Card” to make a quarterly payment.

Rippling’s full-service payroll software

Even though Kentucky makes it simple to submit your payroll taxes online, there is an even easier way: Rippling’s payroll software, which is so powerful that it practically runs itself. If you want to automate your tax compliance work and make sure your federal and local taxes are always filed and paid at the right time, to the right agencies, you need Rippling.

FAQs about Kentucky payroll taxes

What if an employee works in Kentucky but lives in another state?

Kentucky has reciprocal tax agreements with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin. That means that if you have an employee who works in Kentucky, but lives in any of those states, you won’t withhold Kentucky income tax from their wages—you’ll only withhold taxes for their home state.

Are there local tax laws in Kentucky?

Yes. Kentucky’s cities and counties can levy their own local taxes (called occupational taxes or occupational license taxes). These are typically imposed as a percentage of net earnings on people who work within the city or county, or net profits on businesses based in the city or county.

Can your tax returns be audited in Kentucky?

Yes. The Kentucky Department of Revenue’s Audit Program conducts audits on businesses across the state to ensure fair and equitable tax treatment.

Are nonprofit organizations subject to payroll taxes in Kentucky?

Yes. Nonprofits in Kentucky can qualify for exemptions from three types of taxes: corporate income tax, sales and use tax, and property tax. They are subject to payroll taxes in the state

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.