What payroll taxes do small businesses need to pay?

Payroll Taxes for Small Businesses in Kentucky

Small businesses operating in Kentucky must comply with federal and state payroll tax obligations. Understanding these taxes is critical for accurate payroll processing and maintaining compliance.

Federal Payroll Taxes

• Social Security Tax: Employers must withhold 6.2% of employee wages and match this amount.
• Medicare Tax: Employers withhold 1.45% of wages and match the same amount.
• Federal Unemployment Tax (FUTA): Employers pay this tax; it is not withheld from employee wages. The standard FUTA rate is 6.0% on the first $7,000 of wages per employee annually, with potential credits for timely state tax payments.
• Federal Income Tax Withholding: Employers are required to withhold federal income tax based on employee W-4 forms.

Kentucky State Payroll Taxes

• Kentucky State Income Tax Withholding: Employers must withhold state income tax from employee wages according to Kentucky withholding tables and remit to the Kentucky Department of Revenue.
• Kentucky Unemployment Insurance Tax (SUTA): Employers pay this tax based on wages paid to employees, with rates assigned by the Kentucky Office of Unemployment Insurance. It applies to the first $10,800 of wages per employee annually as of 2026.

Operational Considerations

• Employee Classification: Correctly classify workers as employees or independent contractors to determine payroll tax responsibilities.
• Timely Reporting and Payments: Submit payroll tax reports and payments on schedule to avoid penalties. Kentucky requires electronic filing for most employers.
• Recordkeeping: Maintain accurate payroll records, including tax filings and wage payments, for at least four years.
• Automation: Use payroll software or services to automate tax calculations, withholding, and filing to reduce errors and improve efficiency.

Staying current with federal and Kentucky payroll tax requirements ensures smooth payroll operations and compliance for your small business.