Kentucky Salary Paycheck Calculator
Managing payroll taxes for your Kentucky business can be a confusing and time-consuming process. Whether you own a popular new brewery in Louisville or operate a quaint bed and breakfast in Bowling Green, you know nailing payroll taxes and paycheck rules is critical to keeping your workers and the government happy. That’s why we put together this list of answers to the most common questions small business owners ask about Kentucky payroll taxes. We also explain some of the payroll rules like “What’s Kentucky’s salary threshold?” and “Does Kentucky require paid time off?”
Kentucky state payroll taxes
How do employers calculate withholding tax in Kentucky?
Kentucky uses a flat 5% tax rate on personal income. This makes calculating withholding straightforward. You can either do some math by multiplying your employee’s taxable income by 5% or use Kentucky’s withholding tables to calculate the amount of tax to deduct.
Does Kentucky have tax reciprocity agreements with other states?
Kentucky has tax reciprocity agreements with these states:
- West Virginia
These agreements allow residents of any of the above states to work in Kentucky without being subject to Kentucky’s withholding tax. This means that employers won’t withhold Kentucky income tax from their paychecks.
How will you know if your employee is exempt from withholding? All employees should complete Form K-4, Kentucky’s Withholding Certificate, when they begin working for you. They will mark whether they are a resident of a reciprocal state or if they qualify for another exemption—like not expecting to have a tax liability for the year or being a nonresident military spouse.
How and when is withholding tax paid to the state?
How often you need to pay depends on how much tax you owe. Most businesses will pay annually, quarterly, monthly, or twice monthly. Some employers will need to make next-day payments if they accumulate $100,000 in withholding tax in a period.
In addition to paying the tax, you’ll also need to file payroll tax returns with the state.
If you pay annually, you’ll use Form K-3, Kentucky Employer’s Income Tax Withheld Worksheet, to report your wages and tax.
Everyone else will use Form K-1, Kentucky Employer’s Income Tax Withheld Worksheet, each time they make payment, except for the year’s final payment. For the final yearly payment, use Form K-3 to reconcile the total amount of tax due with the amount of tax you previously paid.
It’s important to note that filing Forms K-1 and K-3 are required even when no withholding tax was deducted for the period.
Additionally, each year, you’ll need to send copies of Form W-2, Wage and Tax Statement, and any Form 1099 with Kentucky withholding tax.
How is Kentucky’s unemployment tax calculated?
Employers pay Kentucky’s unemployment insurance on the first $10,800 of each worker’s pay each year. This amount is known as the wage base, and it can change. Kentucky’s unemployment tax rates range from 0.3% to 9.0%, with the tax amount being paid quarterly.
Be sure to register your company with the Kentucky Office of Unemployment Insurance because electronic payment is required when you have ten or more employees. Quarterly wage reports must accompany your tax payments. The same ten employee threshold applies to the electronic filing of your wage report. Like with the withholding tax, wage reports are required for all quarters, even those with no tax liability.
What’s the salary threshold in Kentucky?
Because the state of Kentucky doesn’t have its own salary threshold, it adheres to the federal salary threshold, which is now $684 per week (equivalent to $35,568 per year for a full-year worker). The Department of Labor permits employers to count some bonuses, commissions, and other incentive payments toward meeting the standard salary level (up to 10%). Employees who earn at least $107,432 per year may qualify as “highly compensated.” See this Department of Labor fact sheet for details.
Do new hires need to be reported to the state?
When is Workers’ Compensation insurance required in Kentucky?
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.
When do employers need to pay final wages in Kentucky?
Employers must provide final paychecks to former workers by the later of:
- The next regularly scheduled payday or
- 14 days after separation
Does Kentucky require employers to provide any type of paid time off?
Kentucky has one type of mandatory paid leave. Employers must provide at least four hours of paid leave to allow workers to vote.
Federal payroll taxes
In addition to Kentucky state taxes, you need to pay federal payroll taxes as well.
If an employer pays state unemployment tax, do they also need to pay federal unemployment tax?
Yes. 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.
How is federal withholding tax calculated?
The amount of federal income tax you’ll withhold from your workers’ paychecks depends largely on information from Form W-4, Employee’s Withholding Certificate.
Each employee should complete this form when they start working for you and update it whenever their tax situation changes. With information like tax filing status and the number of dependents (which you’ll get from Form W-4), you can use the federal withholding tables to compute how much tax to take out.
How is FICA tax calculated?
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.
|Social Security tax||6.2% on the first $147,000 of wages in 2022|
|Medicare tax||1.45% on all wages|
What’s the Additional Medicare tax, and how’s it calculated?
The Additional Medicare tax has been around since 2013 and is paid by some employees on top of the 1.45% paid via FICA. If you have any employees making more than $200,000 per year, you’ll need to withhold 0.9% of the wages over $200,000 for the Additional Medicare tax.
How are federal payroll taxes paid to the IRS?
The IRS encourages electronic payments of your federal payroll taxes through EFTPS. How frequently you pay is based on how much tax you owe.
Annual or quarterly payments
Federal unemployment tax is usually paid annually. But some employers may need to make quarterly payments if they owe $500 or more. With each payment, file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.
Monthly, semi-weekly, or next-day payments
FICA, federal income withholding tax, and the Additional Medicare tax are most commonly paid monthly or semi-weekly. But some employers with large payrolls may need to make next-day payments.
No matter how often you make payments, you’ll need to file Form 941, Employer’s Quarterly Federal Tax Return, each calendar quarter.
Keep a close eye on deadlines. Paying taxes and filing payroll reports on time can prevent costly penalties. If you’d rather spend your valuable time and energy focused on other business activities, we get it. Comprehensive payroll providers can take charge of your payroll and make sure your employees are paid on time and that you never miss a payroll tax deadline.