Kentucky payroll setup for your first hire

Kentucky takes state income tax from paychecks. Those amounts sit with the Department of Revenue, not the Office of Unemployment Insurance.

Kentucky takes state income tax from paychecks. This is not Texas, Florida, Washington, or Tennessee. Those states do not take state income tax from paychecks. A federal Employee’s Withholding Certificate (Form W-4) is not the Kentucky certificate.

DOR is the Kentucky Department of Revenue, the income-tax office. KRS 141.310 says every employer that pays wages must withhold Kentucky income tax. The Employer Payroll Withholding page says every filing frequency must file and pay that withheld tax electronically. Register on MyTaxes, the Department of Revenue e-services portal, or file Form 10A100, Kentucky Tax Registration Application. The Department of Revenue assigns a Withholding Account Number. Gusto’s help article calls that number six digits, or nine digits with three leading zeros. Hold the number on the registration confirmation and on Form K-1 or Form K-3. A federal Employer Identification Number, called FEIN, is not that number. A Kentucky Employer Identification Number, called KEIN, is not that number either. A payroll login is not either account.

The 2026 Form 42A804, Kentucky’s Withholding Certificate, also called Form K-4, prints a flat 3.5% Kentucky rate and a $3,360 standard deduction. The Department of Revenue’s instructions on that form say Form K-4 is required only when an employee claims an exemption from withholding or asks for extra withholding. If neither applies, you do not have to keep a Form K-4. The federal W-4 is not that Kentucky certificate. Do not treat a vendor “collect a K-4 from every hire” line as the Department of Revenue rule.

Kentucky has income-tax reciprocity with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin. 103 KAR 17:010 and 103 KAR 17:140 print those agreements. A resident of those states who works in Kentucky may be exempt from Kentucky withholding after giving you a completed Form K-4. Virginia’s exemption applies only if the worker commutes daily. Ohio’s exemption does not cover an S-corporation shareholder-employee who owns 20% or more. Form K-4 also lists a Fort Campbell exemption and a nonresident military-spouse exemption. Those exemptions are not a Maryland-style county income tax on the same state file.

103 KAR 18:150 sets the withholding return by a lookback period. Shops that withheld less than $400 in the prior year file Form K-3, Employer’s Annual Reconciliation Return, by January 31. Shops that withheld $400 or more, but less than $2,000, file Form K-1, Employer’s Return of Income Tax Withheld, each quarter. Higher lookback amounts move the shop to monthly or twice-monthly Form K-1 filings. File Form K-5, the annual withholding statement reconciliation, on MyTaxes. A payment is not a return. The withholding number still sits with the Department of Revenue. The unemployment number still sits with the Office of Unemployment Insurance.

When you owe unemployment: $1,500 in a quarter, or one person in 20 weeks

OUI is the Kentucky Office of Unemployment Insurance. That tax is often called SUTA, state unemployment tax, or SUI, state unemployment insurance. The 2026 Employer Guide restates the regular-shop test. You become liable if you pay $1,500 or more in gross wages in a single calendar quarter, or you have at least one worker performing service in any part of 20 different weeks of a calendar year. KRS 341.070 prints the same $1,500-quarter or 20-week test for the current or preceding calendar year. The weeks need not be consecutive. The worker need not be the same person each week. Domestic shops use a $1,000-quarter test. Agricultural shops use a $20,000-quarter test, or 10 workers in 20 weeks. A 501(c)(3) nonprofit becomes liable at four workers in 20 weeks, with at least one of those workers performing some work in Kentucky. A shop already liable under the Federal Unemployment Tax Act, called FUTA, with Kentucky employees is also liable. This scorecard is the regular-business path.

This is not California’s $100-in-a-quarter test. There is no 15-day California clock on the Office of Unemployment Insurance page. Do not copy that clock onto Kentucky. This is not Oregon’s $1,000-quarter or 18-week test. Do not copy an 18-week clock onto Kentucky. This is not Indiana’s $1 covered-wage test. Do not copy that $1 test onto Kentucky. This is not Maryland’s one-worker clock from the first day of business. Maryland also tells shops to file a Combined Registration Application within 20 days of opening. Kentucky’s Form 10A100 is not that Maryland form. Minnesota tells shops not to register unemployment until covered wages have actually been paid. Kentucky’s 2026 Employer Guide says you need a KUIP employer account if you employ workers in Kentucky. South Carolina uses the same $1,500-quarter or 20-week pair. South Carolina’s unemployment office is not the Office of Unemployment Insurance. Kentucky does take state paycheck withholding. Do not treat Kentucky like a no-withholding state.

The Office of Unemployment Insurance assigns a Kentucky Employer Identification Number, called KEIN. The 2026 Employer Guide calls that number the state counterpart to the federal EIN. KUIP uses a nine-digit KEIN. Hold the number on the KUIP confirmation and on the tax-rate notice. Do not substitute a federal EIN for that number. Do not substitute the Withholding Account Number.

Register unemployment on KUIP. KEWES, Kentucky’s Electronic Workplace for Employment Services, is the old employer tax door.

Those are two names for the same Office of Unemployment Insurance office. KUIP is the Kentucky Unemployment Insurance Portal, the live unemployment-tax portal. The 2026 Employer Guide, approved July 31, 2026, says KUIP replaces KEWES, Kentucky’s Electronic Workplace for Employment Services, for employers and third-party administrators. Tax functions moved on August 17, 2026. Open the Unemployment Insurance Self-Service page and use Employer Login. Create a user account, then choose Employer Registration. KUIP reviews your answers, sets the subjectivity date, and assigns the KEIN. After the account exists, file wages and pay on the same portal. A quarterly wage report is not the new-hire report.

787 KAR 1:010 still names the Unemployment Insurance Self-Service Web Portal at kewes.ky.gov and Form UI-1, Application for Unemployment Insurance Employer Reserve Account. That regulation says file the application no later than the last day of the calendar quarter in which the coverage test is first met. The 2026 Employer Guide and the KUIP resources page send a new shop to KUIP, not to a KEWES registration form. Use KUIP for a first account. Existing shops activate the new nine-digit KEIN on KUIP with the eight-digit activation code mailed by the office or shown in KEWES.

Wage reports and payments are due the last day of the month after the quarter. File a report even if you paid no wages and owe no tax. The 2026 Employer Guide says KUIP calculates taxable wages and the amount due from the gross wages you report.

The Office of Unemployment Insurance’s 2026 tax-rate page prints Rate Schedule A. The taxable wage base is the first $12,000 of wages a worker earns from that employer in the calendar year. KRS 341.270 sets the new-employer contribution rate at 2.7% for shops that become subject on or after January 1, 1999. The 2026 Employer Guide restates that 2.7% floor and says the rate cannot go lower than 2.7% until three years of experience. KRS 341.272 puts a new contract-construction shop at the maximum rate on the schedule in effect until the shop has employed people in Kentucky for 12 consecutive calendar quarters. On 2026 Schedule A that maximum is 9.00%. The Service Capacity Upgrade Fund, called SCUF, is 0.00% in 2026. Use the rate on your tax-rate notice and on KUIP, not a number from a software page.

Many cities and counties take a local occupational license tax. MyTaxes does not collect it.

An occupational license tax is a local tax on wages earned in that city or county. Vendor pages also call it an occupational license fee, or OLF. It is not Kentucky state income tax. It is not Maryland’s county or Baltimore City tax on the same Comptroller file. It is closer to Pennsylvania earned income tax: a separate collector. Louisville Metro requires every employer who pays compensation for work in Louisville or Jefferson County to withhold that tax and file Form W-1, Quarterly Withholding Return, with the Louisville Metro Revenue Commission. Lexington-Fayette prints a 2.25% occupational license fee on work in Fayette County. Other cities and counties set their own rates. Register with the city or county where the work is performed. A MyTaxes withholding account does not open those local files. A KUIP login does not either.

New hire is a 20-day Office of the Attorney General report. A KUIP wage report does not take it.

The new-hire report is a list of who you just hired. It is not a box on the quarterly unemployment wage report. The Kentucky New Hire Reporting Form requires a report of a newly hired or rehired employee within 20 days of the hire date, meaning the date services are first performed for pay. File at ky-newhire.com. KRS 405.435 sends that report to the Office of the Attorney General when you hire an employee who resides or works in Kentucky, or when you rehire or permit a return after a layoff, furlough, unpaid leave, or termination. The statute sets that clock at 20 days. The same statute lets you send a copy of the federal W-4 or the Attorney General’s equivalent form. The New Hire Reporting Form counts a rehire after a 60-day unpaid gap as a new hire. A quarterly KUIP wage report does not satisfy that clock. This is not Massachusetts’s 14-day Department of Revenue report. This is not Georgia’s 10-day report.

The payroll service can send the file. The clock still sits on you.

Workplace injury insurance is due when the first employee starts. The Department of Workers’ Claims does not sell the policy.

This is a first-hire policy for ordinary shops. It is not Florida’s four-employee wait. It is not South Carolina’s four-employee wait. It is not Tennessee’s five-employee wait. It is not Missouri’s five-employee wait. It is not Wisconsin’s three-employee or $500-quarter path. It is not the three-employee-only test used in Georgia, North Carolina, or Virginia. It is not Texas optional coverage. It is not Washington’s exclusive state fund. It is not Ohio’s Bureau of Workers’ Compensation monopoly. Kentucky calls this workers’ compensation.

KRS 342.630 makes any person, other than one engaged solely in agriculture, that has one or more employees in this state a subject employer. KRS 342.340 requires that shop to keep a licensed policy or to qualify as self-insured. The Department of Workers’ Claims employer FAQ restates the one-or-more-employee rule. Family members, temporary workers, and part-time workers count. An out-of-state shop that performs work in Kentucky needs a Kentucky policy. An “all states” endorsement does not qualify. Agricultural work and some domestic work sit on other exemptions in KRS 342.650. This scorecard is the regular-business path.

The Department of Workers’ Claims does not sell that policy. The FAQ says ordinary shops buy a licensed private policy, or qualify as self-insured with the Commissioner. KRS 342.815 requires the state insurance authority to write a policy for a shop that cannot buy coverage in the voluntary market. That authority is Kentucky Employers’ Mutual Insurance, called KEMI. KEMI is a competitive residual-market writer. It is not a Washington-style exclusive state fund. A payroll login is not a policy. The carrier must file proof of coverage with the department within 10 days after the policy is issued.

How Gusto and Patriot describe Kentucky

Confirm the live Withholding Account Number on MyTaxes. Confirm the nine-digit KEIN and rate on KUIP and on the tax-rate notice. Confirm workplace injury insurance with a licensed carrier or on the Department of Workers’ Claims coverage pages. Confirm any city or county occupational license tax with that collector.

Gusto’s Kentucky help article says Middesk (Gusto’s business-verification company) may register state income-tax withholding and state unemployment insurance (SUI). It names the Kentucky Department of Revenue for withholding and the Office of Unemployment Insurance for unemployment tax. It restates the $1,500-quarter or 20-week unemployment test. It says Middesk’s standard order does not open local occupational license taxes. It says Kentucky is a state that mails tax-account letters to the business. It calls the withholding number six digits and says a nine-digit number with three leading zeros should drop the zeros in Gusto. It says Kentucky moved unemployment tax to KUIP in August 2026 and that employers now use a nine-digit KEIN. It lists Form K-1, Form K-3, Form UI-3, and a Kentucky new-hire report among Kentucky files. It tells shops to authorize Gusto as a third-party administrator on KUIP and prints Gusto’s Agent ID as 8411. It also tells shops not to enter the SCUF surcharge in Gusto. Confirm the live numbers on MyTaxes and KUIP. Confirm the rate on the tax-rate notice. Read Gusto’s Kentucky article. See Gusto on the directory.

Patriot’s registration article tells new shops to register with the Kentucky Department of Revenue on MyTaxes or the Kentucky Tax Registration Application, and to open unemployment on “Kentucky’s Self-Service Employer Website.” That self-service line is the old KEWES name. The 2026 Employer Guide sends a new shop to KUIP. The same article tells full-service customers to grant Patriot third-party access on the KUIP employer portal. It prints a 2026 new-employer SUTA rate of 2.7% and a 9.0% rate for new construction employers. Those two numbers match the 2026 Employer Guide and 2026 Schedule A. Use the rate on your tax-rate notice, not a number from a software page. The same article tells every new Kentucky employee to complete Form K-4. That every-hire line is what the software page says. The Department of Revenue says Form K-4 is required only for an exemption or extra withholding. The article puts the 20-day new-hire report on the Kentucky New Hire Reporting Center. It also says workplace injury insurance is due if you have at least one employee subject to the Act, through a private provider or authorized self-insurance. That first-employee line matches KRS 342.630. Read Patriot’s registration article. See Patriot on the directory.

What still sits on the employer

• Decide that you have hit $1,500 in a quarter or one person in 20 weeks. Agricultural, domestic, nonprofit, construction, and FUTA-liable shops use other tests.
• Complete MyTaxes or Form 10A100 so the Department of Revenue can issue the Withholding Account Number. Complete KUIP Employer Registration so the Office of Unemployment Insurance can issue the nine-digit KEIN.
• Hold the Withholding Account Number. Hold the nine-digit KEIN. Do not substitute a federal EIN for either number. Do not enter an old KEWES number on KUIP.
• Enter the premium rate from the tax-rate notice, not a marketing figure. The Office of Unemployment Insurance prints 2.7% for a new regular shop in 2026. A new contract-construction shop pays the Schedule A maximum, 9.00%. SCUF is 0.00% in 2026. Confirm the live notice.
• File the quarterly unemployment wage report on KUIP after the account exists, even in a zero-wage quarter until the Office of Unemployment Insurance closes the file.
• Register withholding on MyTaxes or Form 10A100 before the first withheld paycheck. Collect Form W-4. Collect Form K-4 only when the worker claims an exemption or extra withholding. A federal W-4 is not the Kentucky certificate. File Form K-1 or Form K-3 on the schedule the Department of Revenue assigns. File Form K-5 on MyTaxes.
• Register any city or county occupational license tax with that collector. Louisville Metro and Lexington-Fayette are not the Department of Revenue.
• File the 20-day new-hire report with the Office of the Attorney General at ky-newhire.com. A quarterly KUIP wage report does not satisfy that clock.
• Buy workplace injury insurance when the first employee starts, including part-time, temporary, and family workers. The Department of Workers’ Claims does not sell that policy. Payroll software does not issue that policy.
• Do not copy another state’s clock onto Kentucky. Kentucky does not use California’s $100-quarter test. Kentucky does not use Oregon’s $1,000-quarter or 18-week unemployment test. Kentucky does not use Indiana’s $1 unemployment test. Kentucky does not use Maryland’s one-worker Combined Registration Application clock. Kentucky does not wait to register unemployment the way Minnesota waits for covered wages. Kentucky does not skip state paycheck withholding the way Texas, Florida, Washington, or Tennessee do. Kentucky does not add county income tax the way Maryland does. Kentucky does use a first-employee workplace-injury rule. Kentucky does not use Florida’s or South Carolina’s four-employee workplace-injury wait. Kentucky does not use Missouri’s or Tennessee’s five-employee wait. Kentucky does not use Wisconsin’s three-employee or $500-quarter path. Kentucky does not use the three-employee-only wait used in Georgia, North Carolina, or Virginia. Kentucky does not use Washington’s exclusive state fund. Kentucky does not use Ohio’s Bureau of Workers’ Compensation monopoly.

Also forming a company in Kentucky? Process Score compares registered agents there.