Key figures
Kentucky payroll
2026, with sources
State withholding at 3.5%
Kentucky’s income tax is a flat 3.5% for 2026, down from 4.0% in 2025, and the Department of Revenue’s 2026 withholding formula applies it after a $3,360 standard deduction. Withholding is registered and filed electronically through MyTaxes, and W-2s and withholding statements are due January 31.
Unemployment insurance
New employers pay at least 2.7% on the first $12,000 of each employee’s wages in 2026, up from an $11,700 base in 2025, so no more than $324 per employee. The rate cannot fall below 2.7% until the employer has three years of experience, and new contract construction employers are assigned the highest rate on the schedule. The service capacity upgrade fund (SCUF) charge is not in effect for 2026.
Local withholding, workers’ comp and final pay
On top of state withholding, most employers withhold occupational license taxes for the city, county and school district where each employee works. A two-founder startup that hires its first engineer in Louisville needs a state withholding account, an unemployment account, a Louisville Metro occupational tax account and a workers’ compensation policy, which Kentucky requires from the first employee.
When someone leaves, Kentucky requires all wages to be paid by the next normal pay period or 14 days after the separation, whichever is later.
Deadlines
- Last day of the month after the quarterQuarterly unemployment insurance wage and contribution report
- January 31W-2s and annual withholding reconciliation
- On each city’s and county’s scheduleLocal occupational tax withholding returns
The federal baseline
This page covers what Kentucky adds. The federal rules underneath it apply here too.
Common questions
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.
Do we withhold local taxes for Kentucky employees?
In most Kentucky cities and counties, yes. Occupational license taxes are levied on wages where the work is performed, and the employer withholds and remits them to each local tax office alongside the state withholding. A payroll provider needs each employee’s work location, not just home address, to get it right.
Payroll next door
- ILIllinois payrollIllinois withholds a flat 4.95%, charges UI on the first $14,250, and requires 40 hours of paid leave — or Chicago’s 40 plus 40, at Chicago’s higher minimum wage.
- INIndiana payrollIndiana withholds 2.95% state tax plus a county tax fixed by the employee’s January 1 county; new employers pay 2.5% UI on the first $9,500, and the minimum wage is $7.25.
- MOMissouri payrollMissouri’s 2026 minimum wage is $15.00 with no inflation indexing after HB 567, and the Prop A sick leave mandate is gone. Kansas City and St. Louis add a 1% earnings tax.
- OHOhio payrollOhio payroll carries state, city and school district income taxes, UI on the first $9,000 plus a 0.15% fee for 2026, and no state paid leave program.
- TNTennessee payrollTennessee payroll has no state income tax or local wage tax; it is unemployment premiums on the first $7,000 of wages, new-hire reports in 20 days, and workers’ comp from five employees counting officers.
- VAVirginia payrollVirginia payroll withholds up to 5.75%, pays unemployment on the first $8,000, and follows a minimum wage of $12.77 in 2026 that rises to $15.00 by 2028. Paid family leave contributions start April 1, 2028.
- WVWest Virginia payrollWest Virginia payroll withholds 2.11% to 4.58%, pays unemployment on the first $9,500, and has short timelines: new hires and contractors reported within 14 days, wages at least twice a month.
How Kentucky compares
- No tax on wagesStates with no state income tax on wagesKentucky: withholds state income tax. 9 of 51 states are on the list.
- Paid leave payrollStates with a paid leave or disability payroll programKentucky: no state program. 16 of 51 states are on the list.
- Local payroll taxStates with city, county or district payroll taxesKentucky: city, county or district taxes on wages. 14 of 51 states are on the list.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- ComplianceFirst-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.
More of the Kentucky guide
- AccountingAccounting and state tax in KentuckyCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in KentuckySales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in KentuckyPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- ComplianceCompliance and filings in KentuckyRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in KentuckyCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
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.