Updated: July 10, 2023
Every first Saturday in May, Churchill Downs hosts “The Most Exciting Two Minutes in Sports.” On top of having the Kentucky Derby, the state has some awesome college basketball teams. And of course, Louisville Slugger has been making baseball bats since 1884. If you’re an adrenaline junkie, Kentucky has plenty of adrenaline to give.
As a small business owner, you’ve got some unwanted adrenaline when it comes to payroll taxes. That’s where we come into play. We designed a nifty payroll calculator to help you avoid any payroll tax fiascos. The process is simple. All you have to do is enter each employee’s wage and W-4 information, and our calculator will process their gross pay, deductions, and net pay for both federal and Kentucky state taxes.
Federal payroll taxes for Kentucky employers
First and foremost, we have to give Uncle Sam his due. We’ll go through a quick overview of what you need to know when it comes to calculating federal payroll taxes. If you would like to see a more detailed explanation, we invite you to head on over to our comprehensive step-by-step guide.
- Calculate Gross Wages:
- For all your hourly employees, multiply their hours worked by the pay rate. Don’t forget to increase the rate for any overtime hours.
- For all your salaried employees, divide each employee’s annual salary by the number of pay periods you have.
- Don’t forget to add in other forms of compensation, such as commissions, tips, or bonuses, into gross wages.
- Calculate Any Pre-Tax Withholdings: If your employees contribute to HSA, 401(k), or other pre-tax withholdings, deduct the appropriate amount from their gross pay before you calculate payroll taxes.
- Deduct Federal Income Taxes: Federal taxes can range anywhere from 0% to 37% of taxable earnings. We won’t get into all the nitty-gritty details here, but you can find further withholding information through the IRS website.
- Deduct and match any FICA taxes:
- Social Security tax, which is 6.2% of each employee’s taxable wages up until they reach $160,200 for the year. Employers also have to pay a matching 6.2% tax up to the wage limit.
- Medicare tax, which is 1.45% of each employee’s taxable wages up to $200,000 for the year. For any wages above $200,000, there is an Additional Medicare Tax of 0.9%, which brings the rate to 2.35%. Employers have to pay a matching 1.45% of Medicare tax, but only the employee is responsible for paying the 0.9% Additional Medicare Tax.
- Calculate the FUTA Unemployment Tax, which is 6.0% of the first $7,000 of each employee’s taxable income. Note that if you pay state unemployment taxes in full and on time, you are eligible for a tax credit of up to 5.4 %, which brings your effective FUTA tax rate to 0.6%. Only employers are responsible for paying the FUTA tax, not employees.
- Subtract Post-Tax Deductions, which can be anything from court-ordered wage garnishments to child support. Most of your employees won’t have post-tax deductions, but you still need to look out for them.
Kentucky state payroll taxes in 2023
Now that we’re done with federal taxes, let’s talk about Kentucky state taxes, shall we?
The state used to have a range of tax rates, but it simplified the tax code and now charges a flat rate of 5% for all residents.
Kentucky state unemployment insurance (SUI)
As an employer, you’re responsible for paying state unemployment insurance, which covers those unemployed through no fault of their own. The wage base is $11,100 for 2023, and rates range from 0.3% to 9%
If you’re a new employer, you’ll pay a flat rate of 2.7%. Unless you’re in construction, then your rate is 10%.
Remember, paying your SUI in full and on time qualifies you to get a whopping 90% off of your FUTA tax bill, so make sure you pay attention to the due dates.
And down the stretch, you come! All that’s left to do after calculating your employee’s net pay is cut those checks. Just make sure you’re setting aside the amount your company needs to pay to avoid any FICA and UI tax fiascos.
You will need to use Form 941 to file federal taxes quarterly, and Form 940 to report your annual FUTA tax. You can pay taxes online using the EFTPS payment system. More details about employment tax due dates can be found here.
Additional Kentucky payroll tax resources:
Here are a couple more links that we think will help you with your payroll needs.
These rates are based on local legislation and can change at any time. Always consult a tax professional if you are unsure about your obligations.
More helpful payroll calculators for Kentucky employers
Kentucky employers can use the calculator at the top of this page to quickly calculate their employees’ gross pay, net pay, and deductions in a few clicks. But sometimes there’s a little more math to do before they are able to cut paychecks. For instance, do you own a business where employees earn tips from customers? Keep in mind that you must also withhold taxes from your employees’ paychecks based on the tips they receive. Also, if you have workers who leave from time to time, you may need to spend some time calculating their final paychecks. So, if you need a little more help with the number-crunching, check out some of the calculators below.