Kentucky pay stubs: state taxes and withholding

State income tax

Kentucky uses a single flat rate. For 2026 that rate is 3.5%, down from 4% in 2025, and the Department of Revenue's 2026 withholding formula is built on it. Employees tell you how to withhold on Form K-4, Kentucky's withholding certificate. Because the rate is flat, a raise changes the dollar amount withheld but not the percentage.

Local taxes: the part people forget

Kentucky stands out for its local occupational license taxes. Many cities, counties and some school districts tax wages earned inside their boundaries, and employers are expected to withhold them. Two things make these easy to get wrong:

• They follow where the work is performed, not where the employee lives.
• They can stack. A worker in a city that sits inside a taxing county may owe both.

Rates differ from one district to the next, so confirm the current rate with each local taxing authority before you run payroll.

Other state payroll deductions

Kentucky has no state disability insurance and no paid family leave payroll program, and state unemployment insurance is paid by the employer, not withheld from workers. For most Kentucky employees, the state-level lines on a stub are state income tax and the local occupational tax.

Federal withholding still applies

Every Kentucky paycheck also carries the federal deductions:

• Federal income tax, based on the employee's Form W-4
• Social Security at 6.2%, up to the annual Social Security wage base
• Medicare at 1.45% on all wages, plus an additional 0.9% on wages above $200,000 in a calendar year

Creating a Kentucky pay stub with PayStubNest

Open the pay stub generator, enter hourly pay and hours or a salary, and choose Kentucky. The calculator applies federal withholding and the Kentucky flat rate, and carries year-to-date totals forward from one stub to the next. If a local occupational tax applies, add it as its own deduction line so it stays visible. The exact figures on each stub depend on the pay amount, pay frequency, W-4 choices, deductions and year-to-date totals, and PayStubNest calculates all of it automatically. You can preview every stub for free and only pay when you download.

Record-keeping tip

Keep a note of which local tax district each employee works in, and update it when someone changes job sites. Most occupational tax mistakes in Kentucky come from a worker moving locations while payroll stays the same. See our payroll guides or the Kentucky Department of Revenue for more.