At a glance
- Corporate tax
- 5% + LLET ($175 minimum)
- Tax on wages
- 3.5% flat (2026)
- Sales tax
- 6% (no local)
- Economic nexus
- $100,000 in gross receipts
- Minimum wage
- $7.25/hr
- UI wage base
- $12,000
- New-employer UI rate
- 2.7%
- Paid leave program
- None
- Annual report
- Jan 1–Jun 30, $15
2026 figures, each explained with its source on the area’s page. On top of the federal baseline.
Setup, in order
Qualify with the Secretary of State
Before transacting business in KentuckyApply to the Secretary of State for a certificate of authority, $90.
Register with the Department of Revenue
Before the first Kentucky payroll or saleRegister through MyTaxes for corporation income tax and LLET, withholding, and sales tax if needed.
Open an unemployment insurance account
Before the first Kentucky payrollRegister with the Office of Unemployment Insurance; new employers pay at least 2.7% on $12,000.
Register for local occupational taxes
Before the first payroll in each jurisdictionRegister with the occupational license tax office of each city, county and school district where employees work or the company operates.
Arrange workers’ compensation
At the first employeeBuy a workers’ compensation policy; Kentucky requires it from one employee.
Report new hires
After each hireReport each new hire to the Kentucky New Hire Reporting Center.
Register for sales tax if you have nexus
When Kentucky gross receipts reach $100,000Register for sales tax; SaaS is taxable, so a software seller crossing $100,000 must collect.
Calendar the annual report
Each year between January 1 and June 30File the annual report with the Secretary of State, $15.
The six areas
- AccountingAccounting and state tax in KentuckyKentucky taxes corporations at 5% plus a limited liability entity tax with a $175 minimum, requires unitary combined returns, apportions on single sales factor, and decouples from bonus depreciation and Section 174A.Corporation income tax rate5%
- ReceivablesReceivables and sales tax in KentuckyKentucky charges a flat 6% with no local sales tax, taxes SaaS as a prewritten computer software access service, and since August 1, 2026 requires remote sellers to register on $100,000 of gross receipts alone.Sales tax rate6%
- PayablesPayables and contractors in KentuckyKentucky asks for 1099s only when Kentucky tax was withheld; on the payables side, the issue is a flat 6% use tax that reaches SaaS subscriptions bought from vendors that do not collect.State 1099 filingWhen tax withheld
- PayrollPayroll taxes and employer rules in KentuckyKentucky payroll is 3.5% state withholding plus local occupational taxes where employees work, unemployment insurance at 2.7% on $12,000 for new employers, and workers’ comp from the first employee.State income tax withholding3.5%
- ComplianceCompliance and filings in KentuckyKentucky compliance is a $90 certificate of authority, a $15 annual report between January and June 30, Form 720 with the LLET, local net profits returns wherever you operate, and an unclaimed property report before November 1.Certificate of authority$90
- AdvisoryAdvisory: credits and decisions in KentuckyKentucky’s state rates are moderate, but local occupational license taxes on wages and profits, a sales tax that reaches SaaS and a $175 minimum LLET catch startups, and 2026 conformity skips Section 174A.Personal income tax3.5% flat (2026)
Who you register with
- Kentucky Department of RevenueCorporation income tax and LLET, withholding, and sales and use tax (MyTaxes)
- Kentucky Office of Unemployment InsuranceUnemployment insurance registration and quarterly reports
- Kentucky Secretary of StateCertificate of authority and the annual report
- City, county and school district tax officesOccupational license taxes on wages and net profits
- Kentucky State Treasury — Unclaimed PropertyAnnual holder report
Hiring across the border
An employee who lives in one state and works in another is the most common way a startup ends up registered in two. These are Kentucky’s neighbors.
- ILIllinoisA 9.5% combined corporate rate, plus Chicago’s own wage, leave and 15% cloud tax
- INIndianaLow flat rates and no tax on SaaS, but a county income tax on every paycheck
- MOMissouriFlat 4% corporate rate, no franchise tax, and a 1% earnings tax in KC and St. Louis
- OHOhioNo corporate income tax, but city and school district taxes on every paycheck
- TNTennesseeNo wage tax, but franchise, excise and gross-receipts taxes on the entity, and taxed SaaS.
- VAVirginiaFlat 6% tax, no tax on SaaS, local BPOL licenses, and SCC fees priced by shares
- WVWest VirginiaFalling income tax, a 14-day new-hire rule that covers contractors, and taxed services
Common questions
Does Kentucky follow the 2025 federal R&D expensing?
Not for domestic research costs. HB 757 moved Kentucky to the Code as of December 31, 2025 for tax years beginning in 2026, but it adds back the Section 174A deduction and allows only what Section 174 as of December 31, 2024 would have allowed, which is five-year amortization. For 2025 returns Kentucky still uses the Code as of December 31, 2024.
Is our SaaS taxable in Kentucky?
Yes. Prewritten computer software access services are on the list of services taxed under KRS 139.200, so subscription software accessed by Kentucky customers is taxable at 6%, business and consumer customers alike.
Do we file 1099s with Kentucky?
Only those showing Kentucky tax withheld. The Department of Revenue asks for 1099 data only when Kentucky income tax was withheld, due January 31 with the year’s withholding statements.
When do we need workers’ comp in Kentucky?
From the first employee. Kentucky requires any employer outside agriculture with one or more employees in the state to carry workers’ compensation.
When is the Kentucky annual report due?
The annual report is filed with the Secretary of State between January 1 and June 30 for a $15 fee. It is separate from Form 720 and from any local filings.
What makes Kentucky harder to operate in than its tax rates suggest?
Mostly local. A company with employees in Kentucky withholds the 3.5% state income tax and, separately, the occupational license taxes levied by the city, county and sometimes school district where each employee works, and files net profits returns in the jurisdictions where it does business. Those local layers are what make Kentucky payroll and compliance heavier than its flat state rate suggests.
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
- Kentucky Department of Revenue — Corporation Income and Limited Liability Entity Tax
- Kentucky General Assembly — HB 757 (2026 Regular Session)
- EY Tax News — Kentucky HB 757 conformity and income tax changes
- KRS 141.0101 — depreciation methods
- KRS 141.120 — apportionment and sourcing of receipts
- Kentucky Department of Revenue — Employer Payroll Withholding
- Kentucky Department of Revenue — 2026 Withholding Formula
- Kentucky Department of Revenue — Sales and Use Tax
- Kentucky Department of Revenue — Sales Tax Facts, Summer 2026
- KRS 139.200 — imposition of sales tax (taxable services)
- Kentucky Office of Unemployment Insurance — Employer Guide 2026
- KRS 337.055 — payment of wages on leaving
- KRS 342.630 — employers subject to workers’ compensation
- KRS 67.750 to 67.790 — local occupational license taxes
- KRS 67.753 — apportionment of net profits to a local tax district
- Kentucky Secretary of State — Business filing fees
- Kentucky Secretary of State — Annual Reports
- KRS 393A.240 — when the unclaimed property report is filed
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.