Kentucky Payroll Tax Guide (2026)

Kentucky’s flat income tax drops to 3.5% for 2026 and the unemployment wage base rises to $12,000, but the real payroll work is local: cities, counties and school boards each levy their own occupational license tax, such as 2.2% in Louisville Metro and 2.25% in Lexington.^[4]

10 min read • Reviewed by Rajanikant Patel CPA • Verified Oct 1, 2026 • Sources: DOR, OUI, IRS

Quick Facts

Kentucky payroll at a glance

Kentucky employers handle two state payroll taxes, flat 3.5% income tax withholding and employer paid unemployment contributions, plus local occupational license taxes levied by cities, counties and school boards.^[4]

State income tax withholding

3.50% flat ^[1]

UI taxable wage base

$12,000 per employee ^[4]

New employer UI rate

2.70% ^[4]

Experienced UI rate range

0.30%–9.00% ^[4]

Employee-paid state payroll tax

None ^[4]

Social Security wage base

$184,500 ^[2]

FUTA net rate

0.6% = $42 per employee ^[14]

State minimum wage

$7.25 per hour (federal floor) ^[11]

Local minimum wage ordinances

None ^[11]

UI registration trigger

An employer begins filing from the quarter in which the Office of… ^[4]

Exempt salary threshold

$35,568 per year ^[13]

Additional Medicare threshold

Over $200,000, employee only ^[3]

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What changed for Kentucky payroll in 2026

Six items moved for Kentucky employers this year. Anything below is what have changed since the 2025 tables, so a rate card carried over from last year will be wrong in at least one place.

Income tax rate cut to 3.5% Standard deduction $3,360 UI wage base rises to $12,000 SCUF suspended for 2026 Rate Schedule A again for 2026 KUIP replaces the legacy portal

Treating occupational license tax as a state filing: Kentucky’s state withholding return does not carry local occupational license tax. Every city, county and school board that levies one runs its own registration, rate, return and deposit calendar, so an employer with staff in Louisville Metro and Lexington-Fayette files with both of those plus the state. Missing a local registration is the most common Kentucky payroll error, and the liability accrues from the first payroll in that jurisdiction.

Estimate

2026 Kentucky payroll tax calculator

Enter one employee’s annual gross wages to see what the employer owes, what comes out of the paycheque, and the true cost of employment.

Kentucky · 2026 rates · per employee, per calendar year

Annual gross wages ($)

Cash wages subject to payroll tax, before any withholding.

Your UI contribution rate

Your exact rate comes from Kentucky Office of Unemployment Insurance each year.

Custom UI rate (%)

FUTA basis

FUTA is 6.0% less a 5.4% credit where the state has no outstanding federal loan.

Employer pays

UI, on first $12,000–

FUTA, on first $7,000–

Social Security, 6.2%–

Medicare, 1.45%–

Employer payroll tax–

Withheld from the employee

Social Security, 6.2%–

Medicare, 1.45%–

Additional Medicare, 0.9% over $200,000–

Withheld from employee–

True cost of employment–

Employer tax as % of wages–

Total payroll tax, both sides–

State income tax withholding is not included above: it depends on the employee’s Form K-4 (42A804), filed only to claim an exemption from withholding or to request additional withholding and filing status, so it cannot be estimated from gross pay alone.

Rates & Nexus

Payroll tax rates & the nexus question

Kentucky runs two state payroll taxes. The table below is the whole state layer for 2026.^[4]

The state payroll taxes

Tax	Paid by	2026 rate	Wage base
UI	Employer	0.30%–9.00%; 2.70% new	$12,000
Income tax withholding	Employee	3.50% flat	No limit

Contribution rates for 2026 are set from Rate Schedule A, which runs from 0.30% for the highest positive reserve ratios to 9.00% for reserve ratios below negative 8.0%. The Service Capacity Upgrade Fund assessment is not in effect for 2026.^[4]

Who has to register

An employer begins filing from the quarter in which the Office of Unemployment Insurance notifies it of liability status, and accounts are opened and reports filed through the state portal.^[4] Income tax withholding is administered separately by Kentucky Department of Revenue, so most employers end up with two state account numbers, not one.

Multistate and remote employees

When an employee works in more than one state, the four-part test below decides which state the wages are reported to. The tests run in order: you stop at the first one that gives an answer.

1. Localisation of service→
2. Base of operations→
3. Place of direction & control→
4. Employee’s residence

One remote employee is usually enough. A single person working from home in Kentucky generally creates an obligation to register and report wages here, even if the business has no office, property or customers in the state.

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Compliance

Registration & return filing

Registration is online and free. The unemployment account and, where one exists, the withholding account are opened separately and carry different numbers.^[4]

How to register

Cross the wage threshold→
Kentucky Unemployment Insurance Portal (KUIP), with the legacy self-service site at kewes.ky.gov→
Receive account number→
File & deposit online

An employer begins filing from the quarter in which the Office of Unemployment Insurance notifies it of liability status, and accounts are opened and reports filed through the state portal.^[4]

Deposit schedule

Annual Kentucky withholding sets the schedule. Under $400 files annually, $400 to $1,999 quarterly, $2,000 to $49,999 monthly, and $50,000 or more twice monthly. An employer that accumulates $100,000 or more of Kentucky tax in any reporting period must remit within one banking day.^[1]

Returns, reports & due dates

Form	What it is	Due
Form UI-3, Employer’s Quarterly Unemployment Wage and Tax Report	Quarterly unemployment return	April 30, July 31, October 31, January 31
Form K-1 for quarterly and monthly periods, Form K-3 for the final period and annual…	Income tax withholding returns	Annual Kentucky withholding sets the schedule. Under $400 files an
Annual reconciliation	Year-end withholding reconciliation	January 31
Form 941	Federal quarterly return	Last day of the month after quarter end
Form 940	Federal unemployment, annual	January 31
New hire report	Report of newly hired employees	Within 20 days of start date

Quarterly unemployment returns are due April 30, July 31, October 31, January 31. A return filed one day late is delinquent, and in most states the penalty attaches to the return, not the payment.^[4]

Pricing

Payroll Pricing

Simple, transparent pricing, no setup fees, no year-end surprises. One flat charge per pay run.

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Line items the big providers quietly bill for

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Setup fee

one-time onboarding

billed
extra

Every payroll run

each pay cycle

billed
extra

Off-cycle payroll

corrections & bonuses

billed
extra

Year-end filings

W-2s, 1099s & more

billed
extra

All you actually pay

Per employee, per pay run

$6 /emp

Plus a flat $40 minimum per pay run. That’s the whole bill.

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Wage Base

Subject wages vs. exempt payments

Not every dollar an employee receives is a taxable wage. The split below governs what goes into the unemployment wage base and what is reported at year end.^[4]

Subject wages

Salaries, hourly pay, overtime and piece rates
Commissions, bonuses and incentive pay
Most cash tips reported by the employee
Vacation, holiday and paid sick leave when taken as wages
Severance and payments in lieu of notice
The cash value of meals and lodging provided as compensation
Employer contributions to a non-qualified deferred compensation plan

Not subject

Reimbursements of genuine business expenses under an accountable plan
Employer contributions to a qualified retirement plan
Employer-paid premiums for accident and health insurance
Most third-party sick pay after the sixth calendar month
Payments to a genuine independent contractor
Workers compensation benefits

The wage base is per employer, per year, not per job. If you hire someone in August who already earned $12,000 elsewhere, your unemployment clock still starts at zero. The one exception is a successor employer taking over an existing payroll, who inherits the wages already paid.

Reference

Glossary of key terms

Taxable wage base: The slice of each employee’s annual pay that unemployment tax is calculated on. In Kentucky that is $12,000 for 2026. Earnings above it are still wages, they are simply no longer taxed for unemployment.
Experience rating: The method Kentucky Office of Unemployment Insurance uses to set each employer’s own unemployment rate from its history of claims. Employers with fewer charged claims move down the schedule; those with more move up.
New employer rate: The rate assigned before an employer has enough history to be experience rated. It normally applies for two to three years, then the account moves onto the experience schedule.
Form K-4 (42A804), filed only to claim an exemption from withholding or to request additional withholding: The state withholding certificate. It sets how much income tax comes out of each cheque and is filed with the employer, not with Kentucky Department of Revenue.
Reserve account: The running balance of contributions an employer has paid in, less the benefits charged against it. The ratio of that balance to taxable payroll is what drives the assigned rate.
Successor employer: A business that acquires another’s payroll may inherit both its experience rate and the wages already paid toward the wage base for the year. Getting this wrong is a common acquisition error.
Localisation of service: The first of four tests deciding which state a multistate employee’s wages are reported to. If substantially all the work is in one state, that state wins and the remaining tests are never reached.
FUTA credit reduction: A reduction in the 5.4% federal unemployment credit applied to states that have carried an outstanding federal loan for two or more consecutive Januaries. It raises the effective FUTA rate and is settled each November.
Supplemental wages: Bonuses, commissions, awards and similar payments made outside the regular payroll cycle. Many states set a separate flat withholding rate for them.
Local withholding: Income or occupational tax levied by a city, county or school district and withheld by the employer alongside state tax. It is assessed separately from the state layer.

Federal, State & Local

Kentucky payroll tax, layer by layer

Federal tax applies everywhere and is the larger number. The state layer is what changes when you cross a border.

Layer 1: Federal

Tax	Rate	2026 base
Social Security	6.2% each side	$184,500
Medicare	1.45% each side	No limit
Additional Medicare	0.9% employee only	Over $200,000
FUTA, standard	0.6% net	$7,000
Federal income tax	Per Form W-4	No limit

Kentucky has no FUTA credit reduction for 2026, so the standard 0.6% net rate applies, $42 per employee. The final list is not published until 10 November 2026.^[14]

Layer 2: State

Tax	Rate	2026 base
UI, new employer	2.70%	$12,000
UI, experienced	0.30%–9.00%	$12,000
Income tax, standard	3.50% flat	No limit

Layer 3, county & city: a real third layer

Kentucky cities, counties and school boards levy occupational license taxes on wages earned inside their boundaries, and the employer withholds and remits them directly to each jurisdiction rather than to the state. There is no statewide rate, no state administration and no combined return, so one employee can be subject to more than one levy and an employer with several worksites registers separately with each local government. Louisville Metro withholds 2.2% for residents and 1.45% for nonresidents, and Lexington-Fayette charges 2.25%.^[9]

The state minimum wage is $7.25 an hour, which is the federal floor, effective 2026-01-01. The tipped cash wage is $2.13. No local ordinance sets a higher floor. The federal wage and hour tables list a single statewide Kentucky rate with no city or county minimum wage rates. Kentucky also requires premium pay after 40 hours in a week and on the seventh day of work.^[11]

Overtime exemption is a separate test. A salaried employee is exempt from overtime only above $35,568 a year ($684.00 a week) Federal FLSA standard salary level, and only if the duties test is also met. Paying a salary is not by itself enough.^[13]

FAQ

Kentucky payroll FAQs

It is 3.5% of taxable income. The 2026 formula annualizes the wage, subtracts the $3,360 standard deduction, applies 3.5%, then divides by the number of pay periods. There are no brackets and the Department of Revenue publishes no separate supplemental wage rate.

It is $12,000 per worker. Rates are set from Rate Schedule A, which runs from 0.30% to 9.00%. A new employer pays 2.7%, and a new employer in the contract construction trades pays the maximum rate under the schedule in effect, which is 9.00% under Schedule A.

No. The Office of Unemployment Insurance confirms the Service Capacity Upgrade Fund is not in effect for 2026. It is scheduled to be reinstated beginning January 1, 2027, so employers should plan for it returning next year rather than assume it is gone.

Cities, counties and school boards each levy their own tax on wages earned in their jurisdiction, and the employer withholds and remits directly to that local government with no state involvement. Louisville Metro is 2.2% for residents and 1.45% for nonresidents, and Lexington-Fayette is 2.25%. Rates and forms come from each jurisdiction, so confirm them before running payroll at a new location.

Frequency follows annual Kentucky withholding: under $400 annual, $400 to $1,999 quarterly, $2,000 to $49,999 monthly, and $50,000 or more twice monthly. An employer that accumulates $100,000 or more in any reporting period must remit within one banking day. Form K-3 covers the final period and the annual reconciliation and is due January 31.

Form UI-3, the Employer’s Quarterly Unemployment Wage and Tax Report, is due the last day of the month following the close of each calendar quarter, so April 30, July 31, October 31 and January 31. Filing is electronic, with a limited paper exception for an employer with fewer than ten workers that cannot file online.

$12,000 per employee per calendar year. Once an employee reaches that in wages from you, no further unemployment tax is due on that employee for the rest of the year. The count restarts on 1 January and does not carry over from a previous employer.

$7.25 an hour, which matches the federal floor. No local ordinance sets a higher rate. The tipped cash wage is $2.13.

April 30, July 31, October 31, January 31. A return is delinquent the day after the deadline even if the tax itself was paid on time, so file the return whether or not you can pay.

Verification

Sources & methodology

Methodology: every rate, threshold and due date on this page was taken from the administering agency’s own published material for the 2026 tax year, checked on Oct 1, 2026. Where a federal figure applies it comes from the IRS, SSA or US Department of Labor. 4 data points on this page could not be confirmed against a primary source and are either omitted or marked as not published, rather than estimated. Rates change, and some change mid-year, so confirm against your own rate notice before running a payroll.

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