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3 min read

Comprehensive Guide to Kentucky Payroll Taxes

US payroll

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Author

Shannon Ongaro

Last Update

February 10, 2025

Published

August 04, 2023

Table of Contents

Overview of payroll taxes

Paying unemployment insurance

Withholding personal income tax from your Kentucky employee

Paying your Kentucky workers' compensation

Simplify US payroll tax compliance with Deel

Key takeaways
  1. As an employer in Kentucky, you are responsible for paying unemployment insurance to aid individuals who become unemployed through no fault of their own.
  2. It is the employer’s responsibility to withhold and submit personal income tax according to state requirements in Kentucky.
  3. Workers’ compensation is another important insurance to consider, protecting both employer and employee in the unfortunate instance of a workplace injury.

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 $11,700. 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.

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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. 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 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 your workers’ compensation insurance is compliant with the state’s regulations for workers’ compensation.

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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.

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Disclaimer: This article is provided for general informational purposes and should not be treated as legal or tax advice. Consult a professional before proceeding.

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About the author

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.

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