Kentucky employers have it fairly simple compared with other states. Mostly because there are no graduated tax rates or tax brackets. In the Bluegrass State, the two payroll taxes you don’t want to miss are Income Tax, which has a flat rate of 4% for 2024, and Unemployment Insurance Tax.
As always, you’ll still need to keep the federal taxes in mind when you do business in the Bluegrass State. But the state taxes are pretty straightforward.
Let’s break them down, one by one.
Kentucky State Income Tax
If your employees live or work in Kentucky, they must pay the state’s income tax. In 2024, the flat rate is 4%, which is down from 4.5% in 2023.
When you hire an employee, you’ll provide them with a Form K-4, aka the Kentucky Withholding Certificate. But this form isn’t quite like the federal W-4. That’s because, in Kentucky, you’ll automatically withhold 4% of each employee’s income.
They’ll only fill out the Form K-4 if they:
- Don’t expect to owe income tax in Kentucky
- Work in Kentucky but live in Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin—states that have a reciprocal tax agreement with Kentucky
- Qualify for something called the Fort Campbell Exemption Certificate (a military-related exemption that probably won’t apply to your employees)
- Qualify for the nonresident military spouse exemption,
- They want you, the employer, to withhold additional state taxes beyond the 4% rate
If your employees fill out this form and give it back to you, you can skip withholding state taxes for them.
For the employees who don’t fill this form out, you’ll withhold at the tax rate for that year.
Just make sure that you hang on to any K-4 forms that do get filled out and file them in a secure place.
Kentucky Unemployment Insurance Tax
Kentucky levies an unemployment insurance tax on the first $11,400 each employee makes. That number is up from $11,100 in 2023.
As is the case in many other states, the unemployment insurance (UI) tax rate varies based on a number of factors. Each year, the Bluegrass State publishes which UI tax rate schedule will be in use. The rates range from 0.30 to 10%.
Your organization’s UI tax rate depends on how much money is in the reserve account and how much your account has paid out in benefits.
There’s also a reserve ratio to consider. The reserve ratio compares your reserve account balance with taxable wages reported in the last 12 calendar quarters.
To pay this tax, you must register with the Kentucky Office of Unemployment Insurance. The online self-service portal lets employers:
- Set up a new employer account for managing unemployment insurance
- Pay UI taxes via electronic funds transfer (ETF)
- Submit wage reports, which are due at the end of each quarter
The portal also holds the answers to any questions you might have about unemployment insurance in the Bluegrass State. You can get started on the homepage of the Kentucky Office of Unemployment Insurance.
How to Submit Your Kentucky Payroll Taxes
The quickest way to keep track of your payroll taxes in Kentucky is to set up an account with the Kentucky Online Gateway (KOG). Actually, it’s the only way. You must sign up for a KOG account before you can register for a Kentucky Business OneStop Account.
So essentially, you have to create an account to create another account.
Once these accounts are set up, you can use them to manage many aspects of your businesses. And pay your taxes. In fact, for any income earned on or after January 2022, all payroll taxes must be paid and filed electronically in Kentucky.
It’s a bit of a labyrinth, to be honest. So much so that the Kentucky Employer Payroll Withholding page literally shares links to four different payroll services that do all the work for you.
The state is self-aware, at least!
The Official Resources for Kentucky Payroll Taxes
If you want to get a firmer grip on your Kentucky payroll tax knowledge, double-check these pages:
- Employer Payroll Withholding
- Taxes – Kentucky Business One Stop
- E-Filing and Payment Options – Kentucky Business One Stop
- State Tax Registration Requirements – Kentucky Business One Stop
- Manage My Business – Kentucky Business One Stop
- Unemployment Services – Kentucky Career Center
- Office of Unemployment Insurance Self-Service
Or, you can choose the path more easily traveled and put the work in someone (or something) else’s hands.
Want to Skip All This and Get Your Kentucky Payroll Taxes Done Automatically?
If you hadn’t guessed it already, filing all this stuff manually is a nightmare. Most payroll providers will do most of it automatically. And they’ll give you reminders for the tasks they can’t automate.
They make everything so much easier. The best payroll software services carry a lot of weight. They can do things like:
- Calculate, file, and pay payroll taxes on your behalf (!!)
- Run automated payroll for your salaried employees
- Create and file 1099 forms
- Manage worker’s compensation
- Integrate employee benefits, like healthcare and retirement
- Generate pay stubs
- Organize receipts
- Keep your budget in check
We really don’t recommend hiring even one employee without signing up for a payroll software service, whether you live in Kentucky or another state.