A Complete Guide to Kentucky Payroll Taxes

Businesses today are paying payroll taxes more than they pay income taxes each year. The IRS - Internal Revenue Service collects more money as payroll taxes than any other taxable income. Let us consider the following statistics:

In 2017, the IRS collected $2.39 trillion as payroll taxes, which was around 70% of all federal revenue.

Every year, businesses pay so many annual penalties on payroll taxes that a full-blown navy destroyer can be acquired with it.

It has been estimated that in the US, 1 out 3 businesses are paying penalties for payroll taxes of which, small businesses are the most non-compliant

Salary deductions are deducted from the employee's salary for each salary. There are also federal, state, and possibly local taxes. Withholding taxes are payroll taxes that an employer withholds from an employee's income against federal, state, and local income taxes. Employer tax is a payroll tax paid only by the employer. Some payroll taxes, such as Medicare and Social Security, are split taxes that are bifurcated and paid both by the employer and the employee. The employer is responsible for the employee's payroll tax.

However, the employer is not responsible for managing the contractor's payroll tax.

Introduction

Processing salaries and calculating payroll taxes in Kentucky is very easy. Unlike some other states, Kentucky has no local taxes and only one state payroll tax form, making it one of the easiest states to manage your company's payroll. Chapter 141 of the revised Kentucky Law requires employers to withhold income tax on both resident and non-resident employees (unless exempt from the law).

The employer must withhold income tax on employees who receive the "wage" as defined in Section 3401 (a) of the Internal Revenue Code.

Electronic filing and payment requirements

All employers are required to virtually submit and pay income tax withholding for periods beginning on or after 1 January 2022. (103 KAR 18: 150), This process has become completely paperless, thus eliminating the use of Form K1E from the Form Library.

Kentucky Payroll Laws, Taxes, and Regulations

Of course, you must comply with federal income tax, social security, Medicare, and federal unemployment insurance (FUTA) laws. Most US employers are required to pay taxes under the Federal Insurance Contributions Act (FICA). The current FICA tax rate for social security is 6.2% and Medicare is 1.45%. Both the employer and the employee pay these taxes, each paying 7.65% of the total tax.

To ensure accurate payroll reporting, it is important to understand how Kentucky payroll taxes are calculated and relevant laws apply. Kentucky taxes Like most states, Kentucky has certain taxes that businesses must pay. However, Kentucky does not collect local taxes, so you only have to worry about state taxes.

Employer tax on unemployment

All Kentucky businesses are subject to tax under the State Unemployment Tax Act (SUTA). The current wage base is $ 10,800 and rates range from 0.3% to 9.0%. All new employees in Kentucky pay a SUTA rate of 2.7% in the first year. Companies that pay SUTA can claim a tax credit of up to 5.4% on FUTA tax.

Kentucky Unemployment Insurance (SUI)
Kentucky wage base: $ 10,800 in 2021
Kentucky new hire rate: 2.7% in 2021
Kentucky New Home Employment Rate: 9.0% for 2021

Workers' accident compensation

Companies in Kentucky with employees are required to have workers' accident compensation insurance. Workers' accident compensation insurance provides benefits to employees suffering from occupational accidents. The state usually pays these benefits for a week or two, covering only the lost income and medical expenses after the worker is unemployed as a result of the injury.

Income tax

Kentucky has reciprocity with

Illinois
Indiana
Michigan
Ohio
Virginia
West Virginia
Wisconsin

These laws allow workers to be taxed in the state in which they live, not in the state in which they earn wages. This eliminates double taxation of employees. For example, Mr. XYZ has a business in Covington, Kentucky, and his employee lives in Cincinnati, Ohio. Ohio employees earn wages in Kentucky, but the two states have reciprocal treaties that only withhold Ohio taxes from their salaries. Depending on the number of money workers earn, they can pay Ohio income tax anywhere from 0% to 3.688% while working in Kentucky.

Kentucky Minimum Wage

Kentucky has a simple minimum wage equivalent to the federal minimum wage. The minimum wage was finally raised to $ 7.25 per hour in Kentucky in 2008. Companies are required to pay a minimum of $ 2.13 per hour to employees with a tip as long as the tip meets the minimum hourly wage. If not, the company needs to make up for the difference.

Overtime calculation

Kentucky's overtime policy follows the requirements of the Fair Labor Standards Act. Under FLSA, all employers must pay workers at least 40 hours a week, 1.5 times their normal hourly wage. Use the overtime calculator to verify that the overtime calculation is correct. Enter your Kentucky salary information, W4 to calculate or take home your Kentucky net salary. You can use the calculator to determine the following:

Kentucky GrossUp Calculator
Kentucky payroll machine
Kentucky Hourly Pay Calculator
Kentucky 401k calculator
Kentucky Bonus Tax Calculator
Kentucky Dual Scenario Hourly Payroll Calculator
Kentucky Dual Scenario Payroll

Payment to Employees

Kentucky law requires an employer to pay an employee at least twice a month. Companies must also pay their workers within 18 days of the end of the wage period in which they were paid. Kentucky regulates payment methods for employees. These include:

Cash
Paper Checks
Direct Deposits
Payroll Cards

Kentucky Payroll Taxes Law

Kentucky law requires companies with 10 or more employees to submit a payslip to each employee. Each payslip should show the total payment amount for that payment period and all deductions.

Kentucky salary deduction

Kentucky law prohibits employers from deducting the following from employee salaries:

Fine
Cash shortage
Damaged, lost, or stolen company assets
The law further states that employers cannot deduct employee wages except in the following cases:
Government agencies allow you to do so
The employee agreed in writing

According to the Ministry of Labor, companies may not deduct from employee salaries. These deductions may result in employee salaries below the state minimum wage ($ 7.25 per hour).

Last salary for retired employees

Under Kentucky law, regardless of whether an employee is retired, dismissed, or otherwise dismissed, the company shall be the day after the last day of the employee's final salary or within 14 days of retirement, whichever is later. You have to pay your salary on the day of the event. If you need to pay your employees immediately and are not currently using the service, use one of the recommended methods to print your free salary.

A step-by-step guide to paying salaries in Kentucky

Kentucky generally facilitates corporate salaries by following federal guidelines. However, trying to manually calculate Kentucky payroll tax or withholding tax can result in costly errors. Here are the basic steps you should take to pay your salary in Kentucky:

Step 1: Set up your company as an employer. New operators may need to switch to the Electronic Federal Tax Payment System EFTPS and create a new Federal Employer Identification Number (FEIN) which is mandatory to pay federal taxes.

Step 2: Register your business in Kentucky. If your company is new, you will need to register on the Kentucky Secretary of State's website. Companies that pay Kentucky employees must also register with the Kentucky Revenue Department.

Step 3: Create a payroll process. This includes deciding how and when to pay employees, how to use them to issue salaries (paper checks or direct deposits), how onboarding works, and how to update employee information. You can choose to process payroll manually (deprecated), set up an Excel payroll template, or sign up for a payroll service that helps you handle payroll in Kentucky.

Step 4: Ask the employee to fill out the relevant form. All companies that employ employees in Kentucky need to collect certain forms during the onboarding process. All employees must complete the I-9 verification by the first day of work. New employees must also save the completed W4, specifically the state version of W4 (Kentucky withholding certificate or Form K4) to a file.

Step 5: Review and approve the timesheet. You should start processing your company's pay slips a few days before the payslips expire. During this time, you should record and review the documented hours of overtime and non-paid employees so that you can talk to anyone who may have made a mistake. There are many ways to track employee time, some of which are free.

Step 6: Calculate the employee's total salary and tax. We do not recommend manually calculating Kentucky salaries. Kentucky's state income tax is a flat rate of 5%. Flat tax helps employees predict salaries and simplifies calculations a bit.

Step 7: Pay employees wages, benefits, and taxes. Today, most companies pay their employees directly by remittance. However, cash and paper checks are also optional. The Kentucky minimum wage is the same as the federal minimum wage, so make sure you pay your employees at least $ 7.25 per hour. Federal and Kentucky taxes can be paid online. If you use a service provider, you need to work with your service provider to make deductions easily, automatically, and electronically.

Step 8: Save the payslip. Keeping your business record is a good habit. Kentucky law suggests employers hold these records for at least a year:

Employee name and employee number
Social security number
Home address
Birthday, Sex, and Job title
Working days, working weeks, working hours per wage period
Normal wage rate and total income
Total overtime pay
All bonus payments and deductions from each payment period
Total wages paid during each payment period and each payment date

Step 9: Submit payroll tax to the federal and state governments. All Kentucky taxes must be paid to the appropriate state agency, usually quarterly, according to the schedule provided. This can be done online on the Kentucky Treasury website. To pay federal taxes, you can make these payments online using EFTPS in one of two schedules:

Monthly: If the IRS has a monthly schedule, you will be required to pay payroll tax on payments made during the calendar month by the 15th of the following month
Semi-Weekly: If the IRS allocates a semi-weekly schedule, the payroll tax will be filed by the next Wednesday for payments on Wednesday, Thursday, and Friday, and by the next Friday for payments on Saturday, Sunday and Monday

Report taxes quarterly on Form 941 or annually on Form 944, regardless of a payment schedule.

Step 10: Fill out a year-end payslip. Every year, you need to fill out a payslip that includes all W2 and 1099 forms. These forms must be available to employees and contractors by January 31st of the following year.

Kentucky Human Resources Development Act Affects Salaries

There aren't many state-specific human resources development methods in Kentucky. However, you cannot ignore the following section because you need to make sure that Kentucky law complies with most of the federal guidelines.

Report on new employees in Kentucky All Kentucky employers must report new employees and all rehires to the Kentucky New Employee Reporting Center. All employers must report new hires within 20 days of the date of hire. This report is used to enforce child labor and must include the employee's name, address, and social security number.

Meals and breaks

In Kentucky, all employers are required to provide employees with a break of at least 10 minutes. According to the Kentucky Labor Cabinet, this break is a paid leave. Companies also need to allow workers reasonable time to take meal breaks within 3 hours of work shifts and 5 hours of work shifts. You do not have to pay for meal breaks as long as your employees are completely free from their work obligations.

Kentucky Child Labor Law

Kentucky law allows minor children aged 14 and 15 to work up to 40 hours a week during school holidays. If a week is a school lesson, they can only work up to 3 hours a day, 18 hours a week. Minors aged 16 and 17 can work up to 6 hours a day at school and 30 hours a week at school. To work more than 40 hours a week during school hours, parents must require the school to fill out a satisfactory academic transcript form and also a parent/guardian consent form. There is no limit on working hours outside class hours.

Vacation

Giving employees vacation and self-care leave after an injured or sick family has different requirements in each state. There are federal guidelines that you must follow. Kentucky generally follows these guidelines to make your job easier than if your business is in another state.

Family trip in Kentucky
Paid holiday
Absence due to vacation
Optional vacation
Jury trial leave
Bereavement leave

Kentucky is compliant with the Family and Medical Leave Act (FMLA)

The law requires all eligible employers to provide up to 12 weeks of unpaid leave to eligible employees with disabilities. This may include caring for a pregnant or sick family member. FMLA does not require the company to pay the worker for this unemployment period, but the employer keeps the worker's job, or a substantially similar job, available when he returns. Kentucky does not offer additional vacation under state law.

Payroll Forms

Payroll forms can vary from state to state, and some, like Kentucky, have their W4.

Here is a complete list and location of all the federal payroll forms you need to fill out when adopting a federal payroll form

W4 Form: Provides employee withholding tax information so that federal and state income taxes can be properly calculated and withheld
W2 Form: Used to report the total annual wage of each employee
W3 Form: Used to report the total annual wages of all employees
W2 Summary Form
Form 940: Used to calculate unemployment tax and report it to the IRS
Form 941: Used to submit quarterly income tax
Form 944: Used for filing annual income tax
Form 1099: Provides information about non-employee contract work
Withholding tax filing information (Forms W2, W2G, and 1099 series) must be reported to the Kentucky Treasury (DOR) by the January 31 deadline

Attention K5 filer

You will need a Kentucky Online Gateway (KOG) user account (email address and password) to submit Form K5. If you use WRAPS to file a tax withholding tax return, or if you use eFile to file a sales tax or other tax return, please submit Form K5 using the latest credentials.

Remember that Form K5 is an alternative to the filing paper copies of Forms W2, W2G, and 1099. Tax withholding accounts that submit this information in EFW2 electronic file format or publication 1220 will not submit a K5 form.

Tax withholding options

Electronic file EFW2 – sent via web or CD
Publication 1220 electronic files-CD only
Form K5 – Online filing (fill in and submit online)
or K5 – Online form to fill out (fill out, print, mail to DOR) (cannot contain more than 25 withholding tax returns)
Form K5 Form K5 is used to report withholding information from Forms W2, W2G, and 1099 and is completed online with a choice of two filing methods
You can either click the submit button to submit it electronically, or you can print out the completed form and mail it to the address provided on the form. However, the print and mail options are only available to those who have reported a withholding tax return of less than 26

Kentucky Payroll Tax Resources

The Kentucky Treasury provides many forms, up-to-date legal and regulatory information, and other employee-specific information
The Kentucky One-Stop Business Portal provides excellent resources for existing and new businesses
The Kentucky Labor Cabinet provides support and resources to ensure that companies comply with unemployment, workers' compensation, and other labor laws

Conclusion

Kentucky is one of the easiest states to pay, with only one state-specific payroll form and no need to calculate local taxes. Most of Kentucky's employer salary and staffing laws comply with federal regulations, so you don't have to worry about complying with complex and overlapping laws.

How Can Deskera Assist You?

As a business, you must be diligent with employee leave management. Deskera People allows you to conveniently manage leave, attendance, payroll, and other expenses. Generating payslips for your employees is now easy as the platform also digitizes and automates HR processes.

Try Deskera For Your Business

Click here for free trial

Key Takeaways

Payroll taxes are all about withholding taxes which is the obligation of an employer
Payroll or withholding tax is withheld from the employee's salary and remitted to the IRS
The employee contribution rate is 7.65% and is used for social security and Medicare
Employers must withhold federal income tax in addition to state or local taxes