Hiring your first employee in Kentucky

What do you have to register for before your first payroll?

Kentucky has no single payroll account, and the count of registrations is higher here than almost anywhere else. One Tax Registration Application, Form 10A100 filed through MyTaxes.ky.gov, opens your withholding account together with sales and use tax, corporation income tax and the limited liability entity tax, so that part really is one form. Unemployment insurance is a separate registration in KUIP, the portal that replaced the old KEWES system in summer 2026. Workers compensation is not a state registration at all: you buy a policy from a carrier and the carrier files proof for you. New hire reports go to the Attorney General. On top of all of that sit the local occupational licence taxes, each of which is its own registration with its own city or county.

Does Kentucky require income tax withholding?

Yes. You register with the Kentucky Department of Revenue, before you pay a kentucky employee's first wages. kentucky publishes no day-count deadline for opening the withholding account, and paper applications take up to three weeks to process, so register ahead of your first payroll rather than after it.

Kentucky withholds at a flat 3.5% for 2026, down from 4% in 2025, and an employee is anyone you pay wages to, including part-time help, family members and corporate officers who take compensation. Residents of Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin who work in Kentucky can be taken out of Kentucky withholding by filing Form 42A809 with you, with two catches: the Virginia exemption only works for a daily commuter, and the Ohio exemption does not cover a 20% or greater S corporation shareholder-employee. The real trap is the layer underneath the state. Kentucky cities, counties, school districts and special districts levy their own occupational licence taxes on wages earned for work performed in the jurisdiction, and the Secretary of State's statutory database at web.sos.ky.gov/occupationaltax lists 227 such tax districts. None of it runs through your state account: you register, withhold and file separately with each one. Rate ceilings are set by county size and cities have none at all, so counties of 30,000 or more are capped at 1% and Jefferson County at 1.25%, while a city can levy whatever its ordinance says. Districts overlap and stack, which is how Louisville Metro reaches 2.2% for a resident and 1.45% for a non-resident and Lexington-Fayette charges 2.25%. Two things routinely catch out-of-state employers: the state reciprocity agreements above are agreements about the Kentucky income tax only and do nothing to the local fee, so an Indiana resident working in Louisville still pays Louisville; and there is no standard statewide payroll form, because the Secretary of State's standard forms cover only the business's own net profits return. A standard payroll return is now mandated but does not exist yet, so budget for each district's own form today.

What unemployment insurance does Kentucky charge a new employer?

A new Kentucky employer pays 2.7% on the first $12,000 each employee earns, so roughly $324 per employee in the first year. A new employer pays 2.7% on the first $12,000 each worker earns in 2026, which the agency's own worked example puts at no more than $324 per covered employee for the year. You cannot rate below 2.7% until you have accrued three years of Kentucky experience, though you can rate above it, and rate notices go out each December for the following year. Contract construction is the exception and it is an expensive one: a new construction employer is assigned the highest rate on the schedule in force, which is 9.0% under Schedule A for 2026, and stays there until it has employed workers in Kentucky for at least 12 consecutive calendar quarters. You become liable once you pay $1,500 in gross wages in a single calendar quarter or have at least one worker in any part of 20 different weeks in a year, and if you already have federal or out-of-state unemployment liability you are automatically liable for any Kentucky employment from day one. Two dated changes: the $12,000 wage base is now at its statutory ceiling under KRS 341.030(7)(a), so it cannot rise again without legislation, and the SCUF surcharge is 0% for 2026 but returns on 1 January 2027 at 0.0115%, carved out of your rate rather than added to it.

Do you need workers compensation insurance in Kentucky?

Yes, from your first employee. Kentucky sets no headcount to reach, so there is no free window before coverage is required.

• any employer, other than one engaged solely in agriculture, with one or more employees in Kentucky, so coverage begins with your first hire
• out-of-state employers performing work in Kentucky, who need a policy that actually provides Kentucky coverage rather than an all states endorsement
• counts that reach one only by including family members, temporary workers or part-time workers, all of whom the Department treats as employees

Kentucky is a first-employee state and the definition of employee is deliberately wide: the Department says family members, temporary workers and part-time workers all count. You cannot satisfy this from your home state's policy. Because Kentucky requires a policy to cover the employer's entire Kentucky liability, an all states endorsement does not qualify and an out-of-state employer sending anyone in to work needs Kentucky coverage written on the policy. There is no state fund and no state registration step: you buy from any carrier authorised to write workers compensation in Kentucky, and the carrier files evidence of coverage with the Department within ten days of issuing the policy. Self-insuring is not a realistic escape for a small employer, since one of the criteria is assets exceeding liabilities by $10,000,000. Going without is the expensive option: $100 to $1,000 per employee per day uninsured, reimbursement of anything the Uninsured Employers' Fund pays out, and loss of the exclusive remedy protection, which means the injured worker can sue you in court for pain and suffering and punitive damages.

There is no headcount waiver. The statute exempts particular classes of worker rather than small employers: agricultural workers, domestic servants where fewer than two are regularly employed 40 or more hours a week, someone doing up to 20 consecutive work days of maintenance or remodelling, workers paid only in aid or sustenance by a religious or charitable body, and people covered by a federal liability scheme. KRS 342.650(6) also lets an individual who would otherwise be covered elect out under regulations set by the commissioner; the specific election form and eligibility rules live in the Department's regulations and were not read for this record. Separately, KRS 342.420 forbids deducting the premium from anyone's wages, and KRS 342.610(6) requires a posting notice at every location where employees report for payroll.

How quickly must you report a new hire in Kentucky?

Within 20 days of the hiring or return to work of the employee. Reports go to the Kentucky Office of the Attorney General.

Twenty days from hire, and the clock restarts for a rehire: the statute covers anyone you bring back after a layoff, furlough, separation, unpaid leave or termination, not just genuinely new faces. The reach is wider than most states in one direction and narrower in another. Wider, because it captures an employee who resides or works in Kentucky, so a Kentucky resident you hire to work elsewhere is reportable; narrower, because unlike Virginia the statute says nothing about independent contractors, so 1099 workers are not covered. Sending a copy of the employee's W-4 satisfies the requirement. One thing to watch when you search for guidance: the statute directs the report to the Office of the Attorney General, but older Kentucky new hire forms still name the Cabinet for Health and Family Services and the state's business portal calls it the Kentucky New Hire Reporting Center. Believe the statute; the reporting portal is the same one either way. The penalty for a conspiracy between employer and employee to avoid reporting is $250 per calendar month.

Does Kentucky have paid family leave or state disability insurance?

No. Kentucky runs no state paid family leave fund and no state disability insurance, so there is no payroll deduction of that kind and no extra account to open.

Kentucky has no state disability insurance and no state paid family and medical leave programme, so there is no payroll deduction of this kind and no extra account to open. The Kentucky Tax Registration Application enumerates every state tax account a Kentucky business can register for and there is no disability or paid leave line among them. If you are moving payroll from California, New Jersey or Delaware this is one deduction you can drop, and unlike Virginia there is no enacted programme with a future start date waiting for you either.

Do you need a sales tax permit in Kentucky?

Kentucky's sales and use tax is 6% and the permit is issued for each place of business. No fee is published here. The permit is almost certainly free, because neither KRS 139.240 nor KRS 139.250 imposes a charge and the Tax Registration Application asks for no payment, but that is the absence of a fee provision rather than a statement that the permit is free, and no Department page says so. A confirmed zero and an unknown render the same way, so this stays blank rather than assert a figure. The important thing to get right in 2026 is the registration trigger, because the Department's own explainer page is behind the law. That page still describes the remote seller test as 200 or more sales or $100,000 in gross receipts. The statute no longer says that: 2026 Ky. Acts ch. 161, effective 1 August 2026, struck the 200-transaction test out of KRS 139.340(2)(g), leaving a single $100,000 gross receipts test measured over the previous or current calendar year. Believe the statute. In practice this only relaxes the rule, so a seller with many small Kentucky orders that never reach $100,000 no longer has to register, but do not let the stale page talk you into registering when you need not, and do not rely on a transaction count you read on a state page as a reason you are safe. The 60-day clock is generous compared with the 30 days some states give.

Security deposits. Kentucky can demand security but, unlike California and Texas, it is capped by statute: no more than twice the estimated average liability of a quarterly filer or three times that of a monthly filer, rising to three and five times respectively for a habitually delinquent taxpayer.

Does a marketplace like Amazon or Etsy handle the tax for you?

The platform, not you, registers and collects on sales it facilitates into Kentucky once its combined facilitated and own sales exceed $100,000, and the statute expressly relieves the marketplace retailer of all liability for collecting and remitting on those sales. The same August 2026 amendment removed the 200-transaction alternative here too, so the marketplace test is now $100,000 only. The trap is mixed channels. Sales through your own website are still yours, and if those direct sales alone cross $100,000 you must register and collect on them while the platform keeps handling its own. Note also that your marketplace sales still count toward your own remote retailer threshold under KRS 139.340(2)(g), which expressly includes retail sales facilitated by a marketplace provider on your behalf, so a strong Amazon year can push you over the line even though Amazon is the one remitting.

If your sales drop, when can you stop collecting?

Kentucky publishes no trailing nexus rule and no procedure for a remote retailer to stop collecting, so this is recorded as unknown rather than guessed. The statute does carry a tail of its own: the test is met if receipts exceed $100,000 in the previous calendar year or the current one, so a year in which you cross obliges you to keep collecting through the following calendar year even if that year's Kentucky sales collapse. When you genuinely are done, the mechanism is to cancel the account through MyTaxes.ky.gov or Form 10A104 rather than simply stopping your filings, because an open account keeps generating return obligations. Ask the Department before you go quiet.

Does Kentucky charge a tax on revenue rather than profit?

Every corporation and every limited liability pass-through entity doing business in Kentucky owes the LLET, whatever its profit. If receipts or profits from all sources are $3 million or less you pay the $175 minimum and nothing more, which makes this a nuisance rather than a burden for a small employer, but you owe the $175 in a loss year too and no tax credit can reduce it below that floor. What decides whether you owe it is nexus, and Kentucky's nexus regulation is broad: performing services in Kentucky is doing business, whether you do it yourself or direct a third party to do it, and the federal Public Law 86-272 shield only ever covered solicitation of orders for tangible goods, never services. So one Kentucky employee doing real work usually creates both an LLET and a corporation income tax filing obligation. Underneath the state tax sits a second, separate layer that catches people expanding into Kentucky: cities and counties levy their own occupational licence tax on the net profits of the business, apportioned to the jurisdiction, in addition to the payroll fee they take from your employees. Rates are capped for counties, at 1% for counties of 30,000 or more and 1.25% for Jefferson County, but cities have no statutory ceiling, and you owe separately in each district where you do business. The Secretary of State prescribes standard forms for this return, OL-S for a single district and OL-D for two, but KRS 67.767(7) is explicit that the standard form changes nothing about a district's own deadlines, rates or procedures.

Do you have to register your out-of-state company in Kentucky?

Kentucky charges one flat $90 application for a certificate of authority and does not split it by entity type: the fee schedule lists foreign corporations and foreign limited liability companies together at $90, and a foreign limited partnership or business trust pays the same. The organisation tax that scales with authorised shares under KRS 136.060 attaches to forming a domestic profit corporation in Kentucky, not to a foreign entity qualifying, so unlike Virginia or Delaware a large share count does not inflate the bill. Budget $15 a year afterwards for the annual report.

Foreign qualification means registering an entity you already formed elsewhere so it can legally transact business in Kentucky, and it is a different filing from forming a Kentucky entity. The statute lists what does not count as transacting business, including maintaining bank accounts, selling through independent contractors, soliciting orders that require acceptance outside the state, owning property without more, and an isolated transaction completed within 30 days. Hiring an employee to perform work in Kentucky is not on that list. If you transact business without a certificate you cannot bring or maintain a proceeding in any Kentucky court until you obtain one, and you accrue a civil penalty of $2 for each day you go without. The subtlety worth knowing is that KRS 14A.9-010(5) says this test does not decide whether Kentucky can tax you, so qualifying and being taxable are two independent questions and answering one does not answer the other.

Where these figures come from

Every number on this page was read on Kentucky's own agency pages, its statute, or a current-year official form, and this record was last reviewed on 2026-09-08. Where a state's explainer page disagreed with its statute or its current form, we followed the statute or the form and said so in the relevant section, because a state's consumer-facing pages are often the last thing updated when a figure changes.

Anything we could not confirm on a primary source is left blank rather than estimated. A missing figure on this page means we could not verify it, not that it is zero.

This is general information, not legal or tax advice. Rules change and your circumstances matter. Confirm anything you are about to act on with the agency named beside it.