Kentucky levies a flat 4.0% individual income tax for tax years beginning on or after January 1, 2024, and employers pay unemployment insurance on the first $11,700 per employee for 2025. New hires must be reported within 20 days.
Employers must withhold Kentucky income tax for residents and nonresidents working in Kentucky, report new hires, and comply with state wage-and-hour laws, which set overtime at time-and-one-half for hours over 40 per week. Comprehensive state retirement systems (KRS / KPPA) exist for public employees; there is no statewide mandatory private-sector automatic IRA program administered by the Commonwealth.
State tax requirements
| Requirement |
What Kentucky employers must do |
| Individual income tax and withholding |
Flat 4.0% for taxable years beginning on or after January 1, 2024. Kentucky law includes a scheduled statutory reduction to 3.5% for taxable years beginning on or after January 1, 2026. Monitor KY DOR withholding guidance for employer withholding instructions tied to effective dates. |
| UI taxable wage base (2025) |
$11,700 per employee. |
| UI employer rates |
Employer contribution rates are experience-rated. Rate schedules and individual employer notices are published annually — the range historically spans low single digits up to high single digits depending on experience, and new-employer rates are set by statute or regulation. Employers receive a Notice of Contribution Rate each year, issued on or before December 15. |
| Employee UI withholding |
None. Kentucky UI is an employer cost and employees are generally not subject to state UI withholding. Confirm any special programs or assessments on KEWES each filing year. |
| New-hire reporting |
Report new hires and rehires within 20 days of the employee's first day of work. A separation of more than 60 days is treated as a rehire. Reporting forms and instructions are available through the Kentucky new hire program. |
| State-administered retirement |
Kentucky maintains public pension systems and supplemental deferred-compensation plans for state and local public employees (Kentucky Public Pensions Authority / KRS, Kentucky Deferred Comp). These govern retirement for public employees; private-sector employers are not subject to mandatory state-run defined benefit plans. Employers offering retirement options should follow IRS, ERISA and plan rules. |
Local tax requirements
Kentucky cities and counties may impose occupational or business license taxes, often assessed as an occupational tax on wages or as business license fees. Local occupational taxes and filing rules vary by jurisdiction, so check local taxing district rules and file required local returns where applicable. Kentucky cities do not generally impose local income taxes the way some other states do, but occupational license taxes remain a common local payroll-related obligation.
Wage and hour compliance
| Topic |
Kentucky rule |
| Overtime |
Kentucky enforces overtime consistent with the federal FLSA and KRS overtime provisions — non-exempt employees are generally entitled to time-and-one-half for all hours worked in excess of 40 hours in a workweek, unless an exemption applies. State regulation KRS 337.285 establishes the overtime standard. Employers must apply the stricter applicable standard. |
| Minimum wage and tipped employees |
Kentucky follows the FLSA tipped-employee rules; tipped-employee minimum cash wage practices are governed by federal law and state wage rules where applicable. For minimum wage, Kentucky follows the federal minimum of $7.25/hour and the federal tipped minimum under the FLSA. Follow FLSA guidance on tip credit and tipped wages and maintain required records. |
| Rest and meal breaks |
Kentucky does not require paid meal or rest breaks for private-sector employees beyond federal requirements. Short breaks, typically 20 minutes or less, are generally compensable if provided. State agencies publish guidance for state workers; otherwise follow company policy and industry rules. |
| Final pay and pay frequency |
Follow Kentucky law and applicable regulations for final wages and pay frequency — timing rules may vary for separation by resignation versus discharge. Maintain written payroll policies and consult KY DOL / Education & Labor Cabinet guidance for specific timing. |
| Child labor / minimum ages |
Kentucky child-labor rules set age and hour limits for minors. Generally minors may start at age 14 for nonhazardous work with restrictions on hours, and more protective rules apply to those under 16 and during school days. Comply with state restrictions on prohibited occupations, hour limits and required breaks; see the official Kentucky child-labor poster for details. |
| Wage deductions and garnishments |
Honor court orders and child-support garnishments and comply with KRS and federal limits on allowable deductions. Voluntary deductions require written employee authorization. Refer to Kentucky statutes and Office of Unemployment Insurance or Revenue guidance for procedures and forms. |
| Recordkeeping and notices |
Maintain payroll, time and tax records consistent with the FLSA and applicable Kentucky statutes and regulations. Local occupational taxes may require additional local filings and notices. Post required state postings and any local notices; state agency posters are available from the Kentucky Education & Labor Cabinet. |
Paid sick leave and PTO
- Statewide: Kentucky does not have a statewide law requiring private employers to provide paid sick leave. Employers set PTO and sick-leave policies unless a local rule or specific statute requires otherwise.
- Local ordinances and preemption: Kentucky legislation has addressed the authority of local governments to establish ordinances concerning wages and benefits. Review KRS and enacted bills about local authority to confirm whether a specific local paid-leave ordinance is permitted in your jurisdiction. Local authority and occupational tax rules are handled at the county and city level, so consult the adopted statutes and regulations for your locale.
Compliance updates
- 2024-2026 income tax schedule: Kentucky law and enacted measures specify a phased individual income tax schedule — the rate was 4.5% for 2023, 4.0% for taxable years beginning on or after January 1, 2024, and the statute provides for the rate to drop to 3.5% for taxable years beginning on or after January 1, 2026 if statutory conditions are met and implemented. Track KY DOR withholding guidance for the payroll changes tied to these tax-year shifts.
- UI taxable wage base (2025): the taxable wage base increased to $11,700 for reporting year 2025. Use current-year KEWES guidance and your annual Notice of Contribution Rate for the precise rate schedule applicable to your account.
Resources and references
- Kentucky Department of Revenue — individual income tax and employer withholding (revenue.ky.gov).
- Kentucky KEWES / Office of Unemployment Insurance — taxable wage base, contribution notices and rate schedules (kewes.ky.gov).
- Kentucky New Hire Reporting — official new-hire form and instructions (ky-newhire.com).
- Kentucky Education & Labor Cabinet — wages and hours, and labor standards including overtime, minimum wage and wage posting (elc.ky.gov).
- Kentucky Administrative Regulations and KRS via the Legislative Research Commission — overtime statute and local ordinance authority.
- Kentucky Public Pensions Authority (kyret.ky.gov) — public-sector retirement systems.
Note: This overview reflects state guidance as of 09/12/2025. Confirm current rates, wage bases and deadlines with the agencies above before running payroll.
Frequently asked questions
What is Kentucky's income tax withholding rate?
Kentucky levies a flat individual income tax of 4.0% for taxable years beginning on or after January 1, 2024. Enacted legislation provides for a scheduled reduction to 3.5% for taxable years beginning on or after January 1, 2026, so follow Kentucky Department of Revenue withholding guidance for the effective dates.
What is the Kentucky unemployment insurance taxable wage base?
The Kentucky UI taxable wage base is $11,700 per employee for reporting year 2025. Employer contribution rates are experience-rated, and each employer receives a Notice of Contribution Rate issued on or before December 15 each year.
Do Kentucky employees pay state unemployment insurance?
No. Kentucky UI is an employer cost, and employees are generally not subject to state UI withholding. Employers pay SUTA under state rules.
How soon must Kentucky employers report a new hire?
Employers must report new hires and rehires within 20 days of the employee's first day of work. A separation of more than 60 days is treated as a rehire for reporting purposes.
Do Kentucky cities charge local payroll taxes?
Kentucky cities and counties may impose occupational or business license taxes, often levied on wages or as a business license fee. Rules and filing requirements vary by jurisdiction, so employers should check the rules of each local taxing district and file the required local returns.
