Kentucky Hourly Paycheck Calculator
This guide to Kentucky’s payroll taxes will get you off to the right start. Sprint to payroll victory like it’s the Kentucky derby!
Kentucky state payroll taxes
Kentucky state income withholding tax
Kentucky employees are taxed at a flat 5% rate. This includes all Kentucky residents and some non-residents.
Unless your employee is a resident of one of the states with which Kentucky has a tax reciprocity agreement, they will need to have Kentucky income tax withheld from their paycheck. Kentucky has reciprocity agreements with:
- Illinois,
- Indiana,
- Michigan,
- West Virginia,
- Wisconsin,
- Virginia, and
- Ohio
This means if your employee lives in Indiana but commutes to your business in Louisville, Kentucky, they are exempt from having Kentucky income tax taken out of their paycheck.
You’ll know whether an employee is exempt from withholding by having them complete Form K-4, Kentucky’s Withholding Certificate. All your employees should complete this form when they start working for you.
You can do some quick math or use Kentucky’s withholding tables to find out how much tax to withhold. Another option is to use payroll software. With software, there’s no math to do, and no tax tables to sift through. With just a few clicks, the software will make all the calculations for you.
You’ll need to register your business with the Kentucky Department of Revenue since all companies will be required to file and pay the withholding tax online beginning January 1, 2022.
How often you’ll pay withholding tax to the state depends on how much you owe.
The most common payment frequencies are annually, quarterly, monthly, or twice monthly. But some employers with large dollar payrolls that accumulate $100,000 or more of withholding tax in a period must make next-day payments.
Along with paying the tax, Kentucky requires you to file payroll tax returns.
For quarterly, monthly, and twice-monthly payers, you’ll need to file Form K-1, Kentucky Employer’s Income Tax Withheld Worksheet, each time you make payment except for the final calendar year payment. The report must be filed even if no income tax was withheld for the period.
For the final calendar year payment, you’ll use Form K-3, Kentucky Employer’s Income Tax Withheld Worksheet, to reconcile the total amount of tax owed with the amount of tax previously paid.
Form K-3 is the only payroll tax return filed by annual payers.
Each year, employers need to send copies of Form W-2, Wage and Tax Statement, and any Form 1099 with Kentucky withholding tax.
Kentucky unemployment tax
When you hire an employee, you’ll want to register your business with the Kentucky Office of Unemployment Insurance to pay unemployment tax.
Unemployment tax is paid only by employers on the first $10,800 of each worker’s wages each year. This amount is called the wage base, and it can change.
Unemployment tax rates range from 0.5% to 9.5%, and payments are due quarterly. Electronic payment is encouraged but required when you have ten or more workers.
Quarterly wage reports must accompany your payment, and the same ten employee threshold applies for electronic filing.
Since the Office of Unemployment Insurance may need wage information to process a worker’s claim, you’ll need to file a quarterly report even if no tax is due.
For more details on Kentucky’s unemployment insurance program, take a look at their helpful employer guide.
Other Kentucky paycheck rules
Be sure to keep these Kentucky payroll laws in mind.
- Workers’ Compensation insurance: Requirements to obtain Workers’ Compensation vary by state, this table outlines some of these requirements. If you determine that your company is required to purchase Workers’ Compensation insurance in your state, learn how to sign up for this insurance with Gusto. Sometimes, companies get a request for a workers’ comp audit—head to this article and click the workers’ comp audit reports dropdown for more information.
- Minimum wage: The Kentucky minimum wage is $7.25 per hour.
- Overtime: Overtime must be paid at 1 ½ times the hourly rate for hours worked over 40 in a week.
- Final paychecks: You must provide final wages by the next regularly scheduled payday or 14 days after separation (whichever is later).
- Voting leave: Kentucky employers must provide each employee at least four hours of paid leave to vote.
- New hire reporting: New or rehired employees need to be reported to the Kentucky New Hire Reporting Center within 20 days of starting work.
Federal payroll taxes in Kentucky
Don’t forget about federal payroll taxes. There are four you need to know about.
| Federal Payroll Taxes |
| FUTA – Federal unemployment tax |
| FIT – Federal income tax withholding |
| FICA – Social Security and Medicare taxes |
| Additional Medicare tax |
FUTA – Federal unemployment tax
Like the state, the federal government also has an unemployment tax. It’s called FUTA and it’s an annual tax employers pay on the first $7,000 of each employee’s wages. The FUTA rate for 2022 is 6%, but many employers only have to pay 0.6% each year.
FIT – Federal income tax withholding
Most employees need to have federal income tax withheld from their paychecks. The amount depends on things like the employee’s tax filing status and their number of dependents.
Start by getting Form W-4, Employee’s Withholding Certificate, from each worker when they start working for you. This is where they will provide the information you’ll need.
FICA – Social Security and Medicare taxes
The Federal Insurance Contributions Act, or FICA tax, is made up of the Medicare tax and the Social Security tax. In 2022, the Social Security tax requires employers and employees to each contribute 6.2% of wages up to $147,000. The Medicare tax requires each to contribute 1.45% of all wages. See the IRS webpage for details, like maximum thresholds.
| FICA Tax | |
| Tax | Amount |
| Social Security tax | 6.2% on the first $147,000 of wages in 2022 |
| Medicare tax | 1.45% on all wages |
Additional Medicare tax
Some employees may need to pay more Medicare tax. This additional amount is known as the Additional Medicare tax.
As an employer, you’ll need to withhold the Additional Medicare tax from any employee earning more than $200,000 per year.
The current tax rate is 0.9% on wages over $200,000.
Paying federal payroll taxes
Now that you’ve figured out how much tax you owe, you’ll need to send it to the IRS. The frequency you’ll pay depends on how much tax you owe in a year.
Annual or quarterly payments
FUTA tax is generally paid annually. However, some employers may need to make quarterly payments. Each time you make a payment, you’ll need to file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.
Monthly, semi-weekly, or next-day payments
Monthly and semi-weekly payments are most common for FICA, FIT, and Additional Medicare tax. In some cases, employers with large dollar payrolls may need to make next-day payments.
Regardless of when you pay, all employers must file Form 941, Employer’s Quarterly Federal Tax Return, each calendar quarter.
Keeping on top of payroll taxes is a chore. With various tax rates and different deadlines, it can be challenging to keep it straight. If you prefer to have payroll professionals take charge, comprehensive providers can lighten the load by calculating your payroll and filing your reports. This means you can spend more time on your growing business.
Disclaimer
The information provided by the Employer Tax Calculator is for general information and estimation. All of the taxes or fees that apply to your business may not be accounted for, or fully up to date. Gusto, Inc. (dba “Gusto”) does not promise or guarantee that the information in the Employer Tax Calculator is accurate or complete, and Gusto expressly disclaims all liability, loss or risk incurred by employers or employees as a direct result or an indirect consequence of its use. By using the Employer Tax Calculator, you waive any rights or claims you may have against Gusto in connection with its use.