How to Do Payroll in Kentucky: A Step-by-Step Guide

Last reviewed: July 2026

Kentucky's flat income tax rate makes the withholding math simpler than in graduated-bracket states, but you still need to register with two separate agencies and get your pay schedule right from day one. Here's the order to work through it.

Step 1: Get Your Federal EIN

Every Kentucky employer needs a federal Employer Identification Number before anything else. Apply free at IRS.gov and you'll have the number in about 15 minutes. You'll need it for every state registration that follows.

Step 2: Register with Kentucky State Agencies

New Kentucky employers need a withholding account with the Kentucky Department of Revenue and an unemployment insurance account with the Kentucky Office of Unemployment Insurance (KEWES). If you're also forming an LLC or corporation, register the entity with the Secretary of State first, then use the Kentucky Business One Stop portal to link your tax and UI accounts.

From the Payroll Desk

Register before your first payroll, not after. Kentucky processing takes a few business days, and you need your account numbers in hand before you can deposit any withheld tax.

Step 3: Set Up State Withholding

Kentucky taxes wages at a flat 3.5% rate for 2026. Most employees don't need to file anything beyond the federal W-4 — Form K-4 (42A804), the Kentucky Withholding Certificate, is only required when an employee claims an exemption or wants additional withholding.

Register your withholding account through the Kentucky Department of Revenue. Your deposit frequency (annual, quarterly, monthly, or twice-monthly) depends on how much you withhold per year, and all frequencies must file and pay electronically.

Step 4: Register for Kentucky SUI

State Unemployment Insurance is administered by the Kentucky Office of Unemployment Insurance. New employers start at a standard rate of 2.7% on the first $12,000 of each employee's wages, before an experience rate applies.

Kentucky also requires workers' compensation coverage for nearly every employer with one or more employees, under KRS 342.340 — there's no small-employer exemption like some states allow. Check current carrier requirements through the Education and Labor Cabinet.

Step 5: Pick a Pay Frequency and Handle Final Pay

Kentucky requires employers to pay wages at least semimonthly, with no more than an 18-day gap between paydays. Weekly and biweekly schedules are both common and satisfy this rule easily; a true once-a-month schedule does not.

When employment ends, final wages are due within 14 days of separation, or on the next normal payday, whichever is later. This applies the same way whether the employee quit or was let go.

New hires need to be reported within 20 days of their start date — see our New Hire Reporting guide for the required fields.

Step 6: Deposit and Filing Calendar

Once payroll is live, three calendars run in parallel:

• Federal: Deposit withheld income tax and FICA on the IRS semi-weekly or monthly schedule, then file Form 941 quarterly.
• Kentucky withholding: Deposit on the frequency DOR assigns (annual through twice-monthly), based on your prior-year liability.
• Kentucky SUI: File quarterly wage reports and pay unemployment tax to KEWES.

Employers who withhold $100,000 or more in a single period must remit within one banking day, so keeping tabs on your accumulated liability matters. Our paycheck calculator is a quick way to double-check withholding amounts before you deposit.

Step 7: Year-End W-2s

By January 31, issue Form W-2 to every employee and file copies with the Social Security Administration, along with your final Form 941 and Form 940 for the year. Reconcile the Kentucky withholding on your W-2s against what you actually deposited to DOR across the year before you file.

Send new employees to our W-4 Helper for a guided walkthrough of the current federal withholding form.

Frequently Asked Questions

What are the basic steps to run payroll in Kentucky?

Get a federal EIN from the IRS, register with the Kentucky Department of Revenue for state withholding, register with the Kentucky Office of Unemployment Insurance for SUI, collect W-4 and K-4 forms from each employee, set a compliant pay schedule, then run payroll, deposit taxes on schedule, and file quarterly and year-end returns.

What is Kentucky's state income tax rate for withholding purposes?

Kentucky uses a flat individual income tax rate of 3.5% for 2026. Employees only need to file Form K-4 with their employer if they're claiming an exemption or requesting additional withholding; otherwise the flat rate applies automatically.

How often do Kentucky employers need to pay employees?

Kentucky law requires employers to pay wages at least semimonthly, with no more than an 18-day interval between paydays. On separation, final wages are due within 14 days or by the next normal payday, whichever comes later.

What is the Kentucky SUI rate for new employers?

New Kentucky employers pay a standard unemployment insurance rate of 2.7% on the first $12,000 of each employee's wages, under the rate schedule the Kentucky Office of Unemployment Insurance has in effect for 2026.