5 min read
Employer’s Guide to Kentucky Payroll Taxes: SUI, Workers’ Comp, and More
US payroll
Author
Shannon Ongaro
Last Update
August 22, 2025
Table of Contents
Overview of Kentucky payroll taxes
Withholding personal income tax from your Kentucky employee
Paying unemployment insurance
Paying your Kentucky workers' compensation
Simplify US payroll tax compliance with Deel
Key takeaways
- As an employer in Kentucky, you are responsible for paying unemployment insurance to aid individuals who become unemployed through no fault of their own.
- It is the employer’s responsibility to withhold and submit personal income tax according to state requirements in Kentucky.
- Deel Payroll streamlines US and international payroll by automating tax withholdings, contributions, filings, and regulatory updates, helping companies stay fully compliant with minimal effort.
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 Kentucky payroll taxes
Kentucky employers are responsible for managing federal income 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.
Interested in other state payroll guidelines? See our state-by-state guide to payroll.
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 employees’ wages. PIT, 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 2025. Employers are responsible for withholding and remitting this amount of PIT from eligible employees to the Kentucky Department of Revenue. Note that the 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:
| Withholding amount | Frequency | Dates |
|---|---|---|
| Less than $400 per year | Annually | January 31st |
| $400-$1,999 per year | Quarterly | Last day of the following month |
| $2,000-$49,999 | Monthly | The 15th of the following month |
| $50,000 or more per year | Semi-monthly | The 10th and the 25th of every month |
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 at the 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 $11,700. This equates to a maximum tax payment of $1,053 per employee, per year.
Rates are based on how many unemployment claims have been made against your company. However, a 2.7% rate applies to new employers.
UI Tax Payments are due quarterly on April 30, July 31, October 31, and January 31. Late payments incur a $25 penalty plus interest on the unpaid amount.
For more information on paying your unemployment insurance, you can visit the Kentucky Career Center online.
Deel US Payroll
Paying your Kentucky workers' compensation
Workers’ compensation is mandated by state law in Kentucky, even if you only have one employee. Employers are responsible for paying 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.
Note: Always verify that your workers’ compensation insurance is compliant with the state’s regulations for workers’ compensation.
Simplify US payroll tax compliance with Deel
While this guide provides essential information on Kentucky payroll taxes, federal and state requirements extend beyond what is covered above.
To streamline the process and ensure full compliance, companies can turn to Deel US Payroll. For more compliance, benefits, and HR support, try Deel PEO.
Watch the video below to hear how Strada uses Deel US Payroll to streamline operations across the US.
Deel offers a comprehensive solution for managing US and international payroll, including payments, taxes, worker classification, and more. Speak with an expert today to see how you can simplify your US payroll processes and ensure compliance with state regulations.
FAQs
How much is payroll tax in Kentucky?
Kentucky assesses a flat income tax rate of 4.0% for 2025, with a standard deduction of $3,270. Employers calculate withholding using employee wages minus this deduction, then apply the 4% flat rate.
Many Kentucky cities and counties levy their own payroll/occupational taxes. Rates range from 0.5% to 2.5%, with a median county rate of about 1%, but they can be higher in larger localities such as Lexington or Louisville.
Use Deel’s Take Home Pay Calculator to estimate payroll taxes.
Does Kentucky tax out-of-state workers?
Kentucky maintains reciprocal agreements with Illinois, Indiana, Michigan, Ohio, West Virginia, and Wisconsin. Residents of these states pay income tax to their home state for wages earned in Kentucky; Kentucky income tax withholding is not required for these workers.
For workers from other states, or who do not qualify for reciprocity (such as those who reside in Kentucky for 183 days or more), Kentucky payroll taxes must be withheld and remitted.
What taxes do Kentucky residents pay?
- State Individual Income Tax: 4.0% flat rate on taxable income after the $3,270 standard deduction.
- Local (County/City) Occupational Taxes: Most Kentucky counties/cities levy an occupational/payroll tax, commonly between 0.5% and 2.5%.
- Other Taxes: Residents may also owe property tax, state sales tax of 6%, and other applicable local taxes.
How do I pay my Kentucky income tax?
You can pay directly online from a bank account or with a credit/debit card through the Kentucky Department of Revenue’s E-file Payment Options portal. Fees may apply for card payments.
Or, you can make checks payable to "Kentucky State Treasurer" and mail them with the required voucher (Form 740-V).
Both individuals and employers can use electronic or paper methods for tax payments. Estimated payments for 2025 are due April 15, June 16, September 15, and January 15 (2026).
What is the FUTA rate in Kentucky?
The standard FUTA rate is 6.0% on the first $7,000 in wages per employee. Most Kentucky employers receive a credit for timely state unemployment tax payments—up to 5.4%—making the effective FUTA rate typically 0.6%.
In 2025, Kentucky’s status is such that, with full and timely payment of SUTA (state unemployment taxes), the normal 0.6% FUTA rate applies.
Disclaimer: This article is provided for general informational purposes and should not be treated as legal or tax advice. Consult a professional before proceeding.
Shannon Ongaro is a content marketing manager and trained journalist with over a decade of experience producing content that supports franchisees, small businesses, and global enterprises. Over the years, she’s covered topics such as payroll, HR tech, workplace culture, and more. At Deel, Shannon specializes in thought leadership and global payroll content.
