--- title: "Kentucky State Income Tax and UI for Employers 2026" description: "Kentucky employers withhold state income tax at 3.5% flat (down from 4.0%) and pay UI at 0.3%–2.4% on the first $12,000. Full employer guide for 2026." canonical: https://www.teamed.global/country-hiring-guides/united-states/kentucky/state-income-tax-and-unemployment-insurance --- Kentucky · US State child Served by Teamed partner network: SUNA Solutions (United States) # Kentucky state income tax and *unemployment insurance* for employers in 2026 3.5% flat rate, $12,000 UI wage base, what you owe in 2026. Last reviewed 17 July 2026 · Kentucky guide ![Street view of office buildings in Kentucky, a mix of modern glass facades and traditional brick architecture under a cloudy sky.](/images/country-guides/ky-state-tax.webp) Photo: [Cristina Anne Costello](https://unsplash.com/@lightupphotos?utm_source=teamed&utm_medium=referral) via Unsplash · Kentucky Answer·cite this Kentucky employers withhold state income tax at a flat **3.5%** on wages above the **$3,360 annual standard deduction**, under House Bill 1 effective 1st January 2026 (KRS 141.020). Unemployment insurance (UI) tax applies at **0.3%–2.4%** (Schedule A, positive-rated) on the first **$12,000** of each employee's wages per year, up from $11,700 in 2025. New employers pay 2.7%. Kentucky is absent from the DOL's list of potential 2026 FUTA credit reductions, a projection until the list is finalised on 10th November 2026, so the federal effective rate is 0.6% on the first $7,000. Filing is electronic via [MyTaxes.ky.gov](https://mytaxes.ky.gov) for state withholding and [KEWES](https://kewes.ky.gov) for UI. ![A vintage black mechanical adding machine.](/images/country-guides/az-state-tax-polaroid.webp) Adding it up ## What is Kentucky's state income tax rate for employers in 2026? Kentucky's 2026 state income tax rate is a flat **3.5%**, reduced from 4.0% in 2025 via [House Bill 1](https://apps.legislature.ky.gov/record/25rs/hb1.html) (2025 Regular Session). You withhold on annual wages above the **$3,360 standard deduction**. The standard deduction increased $90 from $3,270 to $3,360 for 2026, adjusted for inflation per KRS 141.081 and announced by the [Kentucky Department of Revenue on 4th September 2025](https://revenue.ky.gov/News/Pages/Kentucky-DOR-Announces-2026-Standard-Deduction.aspx). The deduction applies once, regardless of how many jobs the employee holds. Your payroll system subtracts $3,360 from annual gross wages, multiplies by 3.5%, then divides by the number of pay periods to arrive at the per-period withholding amount. The 3.5% rate is the fifth reduction in a multi-year path under triggers established by 2022 HB 8 (5% in 2022, 4.5% in 2023, 4.5% in 2024, 4.0% in 2025, 3.5% in 2026). A further cut to 3.0% in 2027 is possible if the Budget Reserve Trust Fund and General Fund conditions are met, per review by 1st September 2025. | Item | 2026 value | 2025 value | Source | | --- | --- | --- | --- | | Flat rate | **3.5%** | 4.0% | [KY HB 1 (2025)](https://apps.legislature.ky.gov/record/25rs/hb1.html) | | Annual standard deduction | **$3,360** | $3,270 | [KY DOR, 4 Sept 2025](https://revenue.ky.gov/News/Pages/Kentucky-DOR-Announces-2026-Standard-Deduction.aspx) | | Statutory authority | [KRS 141.020](https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=53506), [KRS 141.081](https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=53516) | Kentucky Revised Statutes | | | Rate type | Flat (all income levels) | [KRS 141.020](https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=53506) | | Withholding covers both residents and nonresidents earning wages in Kentucky, per KRS Chapter 141. Employers must register before running payroll; registration and all filings go through [MyTaxes.ky.gov](https://mytaxes.ky.gov) (electronic filing is mandatory under [103 KAR 18:150](https://apps.legislature.ky.gov/law/kar/titles/103/018/150/)). ## How does Kentucky employer withholding work? Employees complete a **K-4 form** (Form 42A804, updated for 2026). You apply the 3.5% flat rate to wages above $3,360, divide by pay periods, and remit electronically. Your filing frequency depends on your annual withholding liability. The K-4 is simpler than a federal W-4: no allowance worksheet, no multiple-jobs adjustment. The employee states whether they're exempt (very few qualify) or claims standard withholding. Your payroll engine does the rest. | Annual withholding liability | Filing frequency | Remittance timing | | --- | --- | --- | | Less than $400 / year | Quarterly | End of each calendar quarter | | $400 to $49,999 / year | Monthly | By the 15th of the following month | | $50,000+ / year | Twice-monthly | Semi-monthly deposit schedule | All filings go through MyTaxes.ky.gov. Paper copies of W-2s are not accepted. Year-end reporting (W-2, W-2G, and 1099) is due **31st January** each year, submitted via Form K-5 (online) or EFW2 electronic file. Passwords for the transmitter system expire every 90 days, so build a calendar reminder. Your filing frequency is assessed at the start of each year based on the prior year's actual liability. If you're new and can't project accurately, Kentucky DOR will assign a frequency after your first return. Underpayment of withholding incurs interest under [KRS 141.985](https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=53655). 3.5% KY flat rate 2026 HB 1 · KRS 141.020 Kentucky 2026 · employer quick reference ### State income tax + UI at a glance State income tax: **3.5% flat** on wages above **$3,360** standard deduction. UI wage base: **$12,000** (up from $11,700). UI rate: **0.3%–2.4%** (Schedule A, positive-rated). New employer UI: **2.7%**. FUTA effective rate: **0.6%** (Kentucky absent from the DOL's potential 2026 credit reduction list, a projection until finalised on 10th November 2026). SCUF: **0.075%** is subtracted from your UI rate and paid into the fund, not added on top, so there is no additional employer cost. Filing: electronic only via MyTaxes.ky.gov (withholding) and KEWES (UI). ## What is Kentucky's unemployment insurance tax rate for 2026? Kentucky UI runs on **Rate Schedule A** in 2026. Positive-rated employers pay **0.3% to 2.4%** on the first $12,000 of each employee's wages. New employers pay 2.7%. The Service Capacity Upgrade Fund (SCUF) takes **0.075%** out of that rate rather than adding to it, so it is not an extra cost. Schedule A has been in effect since 2019. It splits employers into positive-rated (reserve account balance exceeds lifetime benefit charges) and negative-rated (charges exceed contributions). The spread for negative-rated employers is 6.5% to 9.0%. New contract construction employers are assigned the maximum rate under the schedule in effect for the year, which the OUI publishes as a 9.0% to 10.0% range across schedules; Schedule A's maximum is 9.0%, so that is the 2026 figure. | Employer type | Rate range | Wage base | Source | | --- | --- | --- | --- | | Positive-rated (experienced) | **0.3% to 2.4%** | $12,000 | [KY OUI Schedule A](https://kewes.ky.gov/Contact/contacts.aspx?strid=4) | | Negative-rated (experienced) | **6.5% to 9.0%** | $12,000 | KY OUI Schedule A | | New employer (non-construction) | **2.7%** | $12,000 | [KEWES Employer Guide](https://kewes.ky.gov/Documents/EMPLOYER_GUIDE.pdf) | | New contract construction employer | **9.0%** (the maximum rate under Schedule A; the OUI defines it as the maximum rate under the schedule in effect, ranging 9.0% to 10.0%) | $12,000 | [KEWES Employer Guide](https://kewes.ky.gov/Documents/EMPLOYER_GUIDE.pdf) | | SCUF | **0.075%** subtracted from the rate above and paid into SCUF, not added to it (no additional employer cost) | [KY OUI SCUF page](https://kewes.ky.gov/Contact/contacts.aspx?strid=5); KEWES Employer Guide | | The Service Capacity Upgrade Fund is not a surcharge on top of your UI rate, and it is worth being precise about this because it is widely reported the wrong way round. Under KRS 341.243 and the [OUI's SCUF guidance](https://kewes.ky.gov/Contact/contacts.aspx?strid=5), contribution rates are reduced by 0.075% and that same 0.075% of taxable wages is diverted into SCUF instead of into your reserve account. The OUI's Employer Guide gives the worked example: an employer rated at 2.7% calculates SCUF at 0.075% and regular UI at 2.625%, and "there is no additional cost to the employer". The one genuine consequence is that, per the OUI, "you will not be able to claim SCUF payments on your Federal Unemployment Tax filings". Note that the OUI's most recent published SCUF status is that assessments remained in effect for the first quarter of 2025 and were discontinued for the second, third and fourth quarters of 2025. It has published no 2026 status, and KRS 341.243 makes the deduction conditional on the trust fund balance and lets the secretary suspend it at any time. Either way, your total UI cost is unchanged. The taxable wage base increased $300 from $11,700 (2025) to $12,000 for 2026, per [Kentucky OUI](https://kewes.ky.gov/Contact/contacts.aspx?strid=2) and confirmed by EY Tax News in January 2026. Once a worker's year-to-date wages cross $12,000, UI contributions stop on further earnings for that employee for the remainder of the calendar year. Register as an employer and file quarterly via the [KEWES portal](https://kewes.ky.gov) (Kentucky's employer self-service system). Quarterly deadlines: 30th April, 31st July, 31st October, and 31st January. Late payments accrue interest and penalties under [KRS Chapter 341](https://apps.legislature.ky.gov/law/statutes/chapter.aspx?id=38749). ## What is Kentucky's UI taxable wage base in 2026? Kentucky's UI taxable wage base for 2026 is **$12,000 per employee per year**, a $300 increase from $11,700 in 2025. Your experience rate is calculated from your reserve account, the running balance of your contributions minus benefit charges drawn against your account. The reserve account method works like a running ledger. Every quarter you pay UI contributions into your account. When a former employee claims unemployment benefits, Kentucky charges a portion of those benefits against your account. Your reserve ratio (account balance ÷ average annual payroll) determines where you fall in Schedule A. The higher your reserve ratio, the lower your rate within the 0.3%–2.4% positive band. A stable employer with low turnover accumulates reserves over time, gradually moving toward the 0.3% floor. A high-turnover employer or one facing a surge in claims can tip into negative territory and land in the 6.5%–9.0% negative band. New employers stay at 2.7% for the first two to three calendar years while the OUI builds their claims history. After that, an annual rate notice in November or December sets your rate for the following year based on your reserve account position at the computation date (typically 30th June). Track your reserve account balance in KEWES year-round. If you have a quarter with no claims, your balance grows. If you face a spike in separations, request a reserve account statement from OUI and model your rate trajectory before the computation date. ## Is Kentucky on the 2026 FUTA credit reduction list? **No.** Kentucky is absent from the DOL's list of potential 2026 FUTA credit reductions and holds no outstanding federal loan balance, so the effective federal unemployment tax rate for Kentucky employers is **0.6%** on the first $7,000 of each employee's wages. The DOL does not finalise a year's credit reductions until 10th November, so for 2026 this is a projection to plan on rather than a final determination. The standard FUTA rate is 6.0%. Employers in states that have repaid any federal unemployment loans in full receive a 5.4% credit, leaving 0.6% payable. States on the credit reduction list have outstanding federal loan balances, which shrinks the credit and raises the effective rate. Kentucky paid off its post-Great Recession federal unemployment loan balance and has stayed off the credit reduction list since. For the 2025 tax year (reported on the Form 940 filed in January 2026), the [DOL FUTA Credit Reductions page](https://oui.doleta.gov/unemploy/futa_credit.asp) confirms Kentucky is clean. You can also verify your Form 940 obligations on the [IRS Form 940 guidance page](https://www.irs.gov/forms-pubs/about-form-940). The only jurisdictions with an actual credit reduction were California (1.2%) and the U.S. Virgin Islands (4.5%); Connecticut and New York repaid their balances before the November 2025 deadline and avoided a reduction. One timing caveat worth holding. Kentucky is absent from DOL's published list of potential 2026 credit reductions and holds no outstanding federal loan balance, but DOL states that "the final credit reduction for any given year is not determined until Nov. 10 of that year". So 0.6% is a projection until 10th November 2026, not a determination. It is the right figure to plan on, and Kentucky has been clean since 2013, but the list is not formally closed yet. FUTA is paid annually with Form 940. Deposits are required quarterly if your cumulative FUTA liability exceeds $500 in a quarter. At 0.6% on a $7,000 wage base, that's $42 per employee per year in FUTA. A team of 12 would accumulate $504 in FUTA by the time the first two or three employees hit the $7,000 ceiling, requiring a Q1 deposit. ## Does Kentucky have a local occupational tax employers must withhold? **Yes.** 87 of Kentucky's 120 counties levy an occupational license tax. Cities can stack their own levy on top. Louisville charges **2.2% for residents**. There's no unified state portal, each jurisdiction runs its own administration. The occupational tax applies to wages earned within a jurisdiction, regardless of where the employee lives. A worker who commutes into Louisville but lives in Indiana is subject to Louisville's 1.45% non-resident rate. A worker who lives and works in Lexington-Fayette faces that jurisdiction's own rate on top of the state 3.5%. ### Louisville/Jefferson County Louisville Metro Government charges a combined **2.2% for residents**: 1.25% Metro + 0.20% Transit Authority of River City (TARC) + 0.75% school board. Non-residents working in the county pay 1.45% (resident exemption from the school board portion applies). Employers file **Form 220-221** quarterly. If you withhold more than $3,000 in a quarter, monthly deposits are required for the following four quarters. ### Lexington and other cities Lexington-Fayette Urban County Government, Covington, Newport, Owensboro, Bowling Green, and dozens of smaller cities all run separate regimes with their own forms, rates, and deadlines. The Kentucky Secretary of State's [occupational tax registry](https://web.sos.ky.gov/occupationaltax/) lists every jurisdiction actively levying the tax. For a distributed remote team, this can mean five or six separate filings per quarter. Teamed's payroll specialists map the occupational tax obligation for each employee's work location at setup, so you're never surprised by a jurisdiction you didn't know about. ## What payroll taxes does an employer owe in Kentucky? Four tax layers stack for a typical Kentucky employer: federal FICA, federal FUTA, Kentucky state UI (SUTA), and Kentucky state income tax withholding. If employees work in a county or city with an occupational tax, that's a fifth layer with its own filings. Only FICA, FUTA and SUTA are employer money; the withholding layers come out of the employee's pay. | Tax | Rate / amount | Wage base | Filing | | --- | --- | --- | --- | | Federal Social Security (FICA) | 6.2% employer + 6.2% employee | $184,500 (2026) | Form 941 quarterly | | Federal Medicare (FICA) | 1.45% employer + 1.45% employee | No cap (additional 0.9% on employee wages above $200k) | Form 941 quarterly | | Federal Unemployment (FUTA) | 0.6% effective (KY absent from DOL's potential 2026 list, a projection until 10 Nov 2026) | $7,000 per employee/year | Form 940 annual | | Kentucky UI (SUTA) | 0.3%–2.4% (positive-rated); 2.7% new employer | $12,000 per employee/year | Quarterly via KEWES | | Kentucky income tax withholding | 3.5% flat on wages above $3,360 | No cap | Monthly/quarterly via MyTaxes.ky.gov | | Local occupational tax (withheld from the employee) | Varies by jurisdiction (e.g. Louisville 2.2% resident, 1.45% non-resident) | Wages earned in jurisdiction | Per-jurisdiction forms | On a $70,000 Kentucky salary, the loaded employer tax cost (excluding benefits) is roughly: FICA $5,355 + FUTA $42 + SUTA $324 (at 2.7% new employer), or about **$5,721** a year. State income tax and local occupational tax are both withheld from the employee's pay rather than added to your bill, so neither belongs in that figure. SCUF does not belong in it either: the 0.075% comes out of the 2.7%, not on top of it. Your from $599/month Teamed fee sits inside this envelope, covering compliance setup, payroll administration, and dedicated specialist support from real HR and legal experts with deep local employment-law expertise. What Teamed charges for Kentucky from $599 / employee / month, flat, Zero FX You pay **from $599 per employee per month**, starting rate. Every statutory cost, Kentucky UI contributions, state withholding remittances, FICA, FUTA, and local occupational tax filings, passes through at cost, itemised on your invoice. There's no margin on the statutory layer. No setup fee. No exit fee. You get a **dedicated Teamed payroll specialist**, an actual person, not a chatbot or a pooled queue, who handles your Kentucky withholding registration, KEWES enrollment, and occupational tax mapping. Your payroll specialist monitors compliance changes automatically, including the Kentucky rate trajectory, so you don't need to track HB 8 trigger conditions yourself. One platform tracks everything from [contractor classification](/country-hiring-guides/united-states/kentucky/worker-classification-state-test) through EOR payroll to entity setup, the same system from your first Kentucky hire to your own US entity if you reach that point. When your Kentucky headcount or salary base makes a US entity cost-efficient, the [Crossover Calculator](https://www.teamed.global/tools/crossover-calculator) flags that point. When the model no longer fits, you graduate to entity. ## What should you know before hiring in Kentucky in 2026? Kentucky has cut its income tax from 5% (2022) to 3.5% (2026), with a possible 3.0% in 2027. That trajectory matters for multi-year cost modelling. The local occupational tax is the compliance layer most employers miss. Kentucky's rate-reduction path is legislatively unique: triggered reductions that depend on state surplus conditions mean the rate could stay at 3.5% in 2027 or drop again. Build from $599/employee/month Teamed fee into your cost models as the stable line; the state rate change is the variable. 87 counties and hundreds of cities each run their own occupational tax regime. A remote-first team scattered across Louisville, Lexington, and smaller cities could face five or six quarterly filings, each with distinct forms and thresholds. Employers who miss a jurisdiction don't just face a penalty, they've under-withheld from the employee's pay, and recovering that after the fact is administratively painful. Kentucky is an at-will employment state with no statutory notice requirements beyond federal baseline. See our [Kentucky termination law and at-will exceptions guide](/country-hiring-guides/united-states/kentucky/termination-law-and-at-will-exceptions) for the full picture on protected-class carve-outs and wrongful dismissal exposure. Onboarding through SUNA (Teamed's primary US partner) typically runs 3 to 5 business days from signed contract to first payroll cycle. The [Employer Cost Calculator](https://www.teamed.global/tools/employer-cost) lets you model the full loaded cost of a Kentucky hire before you commit. ## Kentucky employer tax FAQs ### What is the Kentucky state income tax rate for 2026? Kentucky's state income tax rate for 2026 is 3.5%, a flat rate applied to all taxable income above the $3,360 standard deduction. The rate was reduced from 4.0% under House Bill 1 enacted during the 2025 legislative session, effective 1st January 2026. ### What is Kentucky's unemployment insurance taxable wage base for 2026? Kentucky's UI taxable wage base for 2026 is $12,000 per employee per year, up from $11,700 in 2025. Employers pay UI contributions on each employee's wages up to this threshold, then stop for the rest of the calendar year. ### What is the new employer UI rate in Kentucky? New employers in Kentucky (outside contract construction) pay a 2.7% unemployment insurance rate until they have sufficient claims history to be experience-rated under Schedule A. New contract construction employers are assigned the maximum rate under the schedule in effect for the year, which the OUI publishes as a 9.0% to 10.0% range across schedules. Schedule A applies in 2026 and its maximum is 9.0%, so that is the 2026 figure. ### Is Kentucky on the 2026 FUTA credit reduction list? No. Kentucky is absent from the DOL's list of potential 2026 FUTA credit reductions and holds no outstanding federal loan balance, so Kentucky employers receive the full 5.4% credit against the standard 6.0% FUTA rate, leaving an effective rate of 0.6% on the first $7,000 of each employee's wages. The DOL does not finalise a year's credit reductions until 10th November of that year, so for 2026 this is a projection to plan on rather than a final determination. ### Do Kentucky employers have to withhold local occupational tax? Yes. 87 of Kentucky's 120 counties levy an occupational license tax on wages earned within the jurisdiction. Cities can stack their own levy on top. Louisville/Jefferson County charges 2.2% for residents and 1.45% for non-residents. Each jurisdiction administers its own returns independently. A note from Tom Price-Daniel 3.5% flat under HB 1 is what employers quote. That's one of four layers. Stack it with 2.7% UI on the first $12,000, 0.6% FUTA on the first $7,000, and occupational tax withheld in 87 of 120 counties, each with its own portal. Budget the stack, not the headline rate. Tom Price-Daniel · Co-founder, Teamed ## Related Kentucky and US guides - [Hiring in the United States, overview](/country-hiring-guides/united-states)parent - [Kentucky overview](/country-hiring-guides/united-states/kentucky)state parent - [Kentucky wages and overtime law](/country-hiring-guides/united-states/kentucky/wage-overtime-and-meal-break-law)sibling - [Kentucky paid family and sick leave](/country-hiring-guides/united-states/kentucky/paid-family-and-sick-leave)sibling - [Kentucky termination law and at-will exceptions](/country-hiring-guides/united-states/kentucky/termination-law-and-at-will-exceptions)sibling - [Kentucky worker classification state test](/country-hiring-guides/united-states/kentucky/worker-classification-state-test)sibling - [Employer of Record overview](/employer-of-record)core - [Teamed pricing: Zero FX Fixed](/pricing)commercial - [EOR vs Entity Crossover Calculator](https://www.teamed.global/tools/crossover-calculator)tool - [Employer Cost Calculator](https://www.teamed.global/tools/employer-cost)tool - [Alabama state income tax and UI](/country-hiring-guides/united-states/alabama/state-income-tax-and-unemployment-insurance)cross-state - [California state income tax and UI](/country-hiring-guides/united-states/california/state-income-tax-and-unemployment-insurance)cross-state - [Talk to an expert](https://www.teamed.global/contact)CTA A note on this page. This is a guide, not legal, tax or accounting advice. Rules change and vary by jurisdiction. Verify current requirements with the relevant authorities, or speak to a qualified professional, before relying on any specific framework.