Kentucky Withholding laws & HR 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 (DOR).
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Reciprocal tax agreements.Under reciprocal tax agreements, salaries or wages earned in Kentucky are exempt from Kentucky withholding tax if the employee:
• Is a resident of Illinois, Indiana, Michigan, West Virginia, or Wisconsin;
• Resides in Virginia and commutes daily to a place of employment in Kentucky; or
• Resides in Ohio and is not a shareholder-employee owning 20 percent or more of an S corporation.
The employee must file a certificate of nonresidence, Form 42A809, to qualify for 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 the age of 26.
Businesses must register for a withholding account by filing Form 10A100, Kentucky Tax Registration Application, or via the Kentucky Business OneStop Portal (
Employers are required to remit withheld taxes annually, quarterly, monthly, or twice a month, depending on the amount withheld during the previous ...

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