Kentucky Withholding laws & compensation compliance analysis

Kentucky Withholding: What you need to know

Kentucky employers obligated to withhold federal income taxes must withhold Kentucky income taxes from all wages paid to residents (whether working in or out of Kentucky) who are regularly employed in the employer's usual course of business. Wages of nonresidents are also subject to withholding to the extent that the wages are for personal services rendered in Kentucky by a regular employee in the employer's usual course of business. Wages subject to federal withholding are generally subject to Kentucky withholding. Taxes must be withheld each payroll period based on tables or a computer formula provided by the Department of Revenue.
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Reciprocal tax agreements. A nonresident employee is not subject to withholding when the employee is a resident of a state having a reciprocal exemption agreement with Kentucky. Residents of Illinois, Indiana, Michigan, Ohio, West Virginia, and Wisconsin must file a certificate of nonresidence, Form 42A809, to obtain this exemption.
Withholding exemption. The Kentucky Department of Revenue strongly encourages all employers to utilize Form K-4E, Special Withholding Exemption Certificate, when applicable. This certificate should be completed by employees who anticipate no Kentucky Income Tax liability. If the employee is eligible to claim this exemption, the employer does not withhold Kentucky income tax from wages. The K-4E may be used instead of Form K-4 by those employees qualified to claim the exemption.
Cost of dependent health care. Kentucky has conformed its income tax law with the federal law so that the cost of healthcare coverage for dependent children is exempt from state income tax until the child reaches age 26.
Electronic filing. The Withholding Return and Payment System ...

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