Payroll tax in Kentucky: What employers need to know [Updated 2026]

Whether you’re a small business owner or the leader of a huge corporation, there’s one thing every business has in common: taxes. From federal income tax to US FICA tax, like social security and Medicare taxes, employers have a lot to keep up with — and that doesn’t even account for state payroll taxes, which vary based on where your employees live.

In Kentucky, payroll taxes are relatively straightforward — the state employs a flat income tax rate that’s less complex to calculate than many other states. In 2026, that rate dropped to 3.5%, continuing Kentucky’s phased income tax reduction schedule. But for every new hire in Kentucky, you’ll need to know about more than just withholding tax — there are also state employer taxes to pay.

If you have employees in Kentucky, it’s time to master Kentucky state taxes — who pays what, how much, when, and to which state agency? Let’s dive in.

The 2 Kentucky payroll taxes

In Kentucky, there are two main types of payroll tax.

The Kentucky Department of Revenue collects income tax, which Kentucky employers submit on their employees’ behalf.

The Office of Unemployment Insurance collects unemployment tax, which is paid by employers.

Kentucky Revised Statute Chapter 141 requires tax withholding for all employees who are paid wages (these can be hourly wages or annual wages). Whether the tax is paid by the employer or the employee, the employer is required to withhold it from the employee’s paycheck and submit it to the appropriate state agency on their behalf.

Unemployment insurance tax

The state unemployment tax (also known as SUI) provides temporary payments to Kentucky residents who lose their jobs through no fault of their own (for example, through layoffs). The tax rates and taxable wage base are set each year by the Kentucky State Legislature. New employers currently pay 2.7%. In 2026, the taxable wage base is $11,400 per employee.

Personal income tax

Personal income tax (PIT) helps fund Kentucky’s schools, roads, healthcare, and other important services and infrastructure. State income taxes are paid by employees, but income tax withholding is done by employers, who then remit the tax to the Kentucky Department of Revenue on their employees’ behalf.

Kentucky has a flat rate for income tax. In 2026, Kentucky’s flat income tax rate is 3.5%, reduced from 4.0% in 2024 as part of Kentucky’s legislated schedule of phased income tax reductions established by HB 8. This makes Kentucky one of the lower flat-rate income tax states in the country.

Kentucky withholding is pretty straightforward to calculate using a formula provided by the state. Using the 3.5% tax rate, the standard deduction, and employee wages, you can calculate gross tax and withholding tax per pay period.

Even though calculating tax withholding is pretty simple in Kentucky, staying on top of state tax laws can be complex for businesses — especially if you have employees in multiple states. That’s where Rippling’s payroll software comes in. Rippling automatically calculates your taxes at the current 3.5% flat rate, submits your tax forms and payments, and keeps you compliant with federal and state laws—freeing you up to focus on running your business. Rippling’s PEO can even handle registering and maintaining your state tax accounts, automating one more part of the payroll tax process.

Automatically calculate, withhold, and pay taxes

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Payroll tax due dates in Kentucky

Kentucky has different due dates for withholding tax and unemployment tax.

Due dates for income tax are determined by how much you pay each year. If the due date falls on a holiday or weekend, payment is due the following business day.

Unemployment tax is due quarterly, by the last day of the month following each quarter:

How to submit payroll taxes in Kentucky

Before you can submit payroll taxes in Kentucky, you need to do a few things:

• Obtain an employer identification number (EIN) from the IRS.

• Collect a Withholding Certificate Form K-4 (Kentucky’s version of a W-4) from each of your employees.

Once the paperwork is in order, you’re ready to start making payments. Here’s how.

File electronically

As of 2022, Kentucky requires all filers, regardless of their filing frequency, to pay their payroll taxes electronically online. The system is simple, fast, and secure — just go to wraps.ky.gov to register and pay withholding taxes.

Paying unemployment taxes is similarly straightforward — go to kewes.ky.gov and click “Pay by EFT/Credit Card” to make a quarterly payment.

Rippling’s full-service payroll software

Kentucky’s income tax reduction to 3.5% in 2026 is good news for employers, but only if your payroll system reflects the change immediately. Rippling’s payroll software is so powerful that it practically runs itself—automatically applying the current 3.5% rate and any future reductions as they take effect. If you want to automate your tax compliance work and make sure your federal and Kentucky state taxes are always filed and paid at the right time, to the right agencies, Rippling has you covered.

Frequently Asked Questions