Overview of Kentucky Taxes
The Bluegrass State imposes a flat income tax of 5%. The tax rate is the same no matter what filing status you use and whether you are filing as an individual or business.
Aside from state and federal taxes, Kentucky residents are subject to local taxes, called occupational taxes, in the state. For most counties and cities in Kentucky, this is a percentage of taxpayers’ wages.
|FICA and State Insurance Taxes||--%||$--|
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- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
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Kentucky Paycheck Calculator
Photo credit: ©iStock.com/Walter Galloway
Kentucky Paycheck Quick Facts
How Your Kentucky Paycheck Works
Whenever you get paid, regardless of which state you call home, your employer will withhold federal income and FICA taxes from your paycheck. Federal income taxes will go to the IRS, where it counts toward your annual income taxes. FICA taxes are comprised of Medicare and Social Security taxes. Each month, you pay into these systems so you can reap the benefits during retirement. Medicare tax is 1.45% of your wages and Social Security is 6.2%. If your salary is over $200,000, your earnings in excess of $200,000 are subject to an additional 0.9% in Medicare tax.
How much you pay in federal income taxes depends on the information that you filled out on your W-4 form. This is the form that tells your employer how much to withhold in taxes, therefore you need to fill out a new one whenever you start a new job or if you need to make any changes during the year. Situations requiring a new W-4 include getting married or having a child.
Because of the new tax plan passed in December 2017, the calculations for tax withholding changed slightly in early 2018. You should have already seen the changes to your paycheck and you’re not required to do anything. However, it is a good idea to recheck your W-4 at the start of the new year just to make sure the information is still correct.
One factor that will affect the amount of taxes withheld from your pay is your marital status. Regardless of how you file your taxes (e.g. single vs. head of household), it will affect how much you owe in taxes and how many withholding allowances you qualify for. Having dependents also affects your allowances.
As a general rule, the more allowances you claim on your W-4 form, the less money is taken out in taxes and the bigger your paychecks are. But you want to exercise caution here. If you claim more allowances that you’re supposed to, you will end up underpaying your taxes all year and you will have a big tax bill during tax season. You could even face underpayment penalties.
Almost everyone has to pay federal income and FICA taxes, but there are other monies that you may opt to have taken out of your paycheck. If you have health or life insurance policies through your employer, those premiums are deducted from your wages. Similarly, if you contribute to company-sponsored retirement plans like a 401(k) or Roth IRA, that money is subtracted from your paycheck. The same goes for any money you choose to put in a health savings account (HSA), flexible spending account (FSA) or commuter benefit program.
Kentucky Median Household Income
As of 2018, Kentuckians are taxed at flat rate of 5%. The state previously had progressive tax rates (ranging from 2% up to 6%) but changed to a flat rate during a tax reform in early 2018.
You also be have to pay local income taxes, which Kentucky calls occupational taxes. Not only will you be charged county taxes, but if you live in a city that also charge local taxes, you’ll be taxed for both. Most counties and cities charge a percentage, ranging from 0.05% to 3.00%. These taxes are levied on your wages, not your taxable income.
Local Income Taxes
|Lexington Fayette Urban County||2.25%|
How You Can Affect Your Kentucky Paycheck
If you want a bigger paycheck, you can start by asking your employer for a raise. You can also ask to work additional shifts if you are eligible for overtime pay.
Modifying your pre-tax contributions can also help your bottom line. While your paychecks are smaller if you go this route, you’re actually sheltering more of your income from the tax man. Some pre-tax accounts you should consider are a 401(k) or 403(b), if your employer offers one. If your employer matches your contributions to a 401(k), you should make sure that you contribute enough to take full advantage of the match. You can get similar tax benefits from a traditional IRA if your employer doesn’t offer a 401(k). You can also make pre-tax contributions into a health savings account (HSA) or flexible spending account (FSA).
If you have to pay a big tax bill every year, you should check your W-4 form to make sure that you aren’t claiming the wrong number of allowances. If you’re claiming too many, this could lead your employer to withhold too little in taxes throughout the year. Then you’ll have to make up that balance in April. You can fill out a new W-4 if you want to claim fewer allowances. You can also elect to have a dollar amount taken out of each of your paychecks if you anticipate having to a pay a lot of taxes. Decide what you want that amount to be - say $50 a paycheck, and write that on the correct line of the W-4. It might seem odd to choose to get smaller paychecks, but remember: You will owe those taxes anyway. You’re simply spreading it out and paying it throughout the year, instead of facing a lump sum in April.
If learning the ins and outs of Kentucky’s tax structure has you wanting to become a resident, take a look at our Kentucky mortgage guide to learn about buying a home in the state. This guide contains everything you need to know about mortgages in Kentucky, whether it be for a new home or refinancing your current one.
Kentucky Top Income Tax Rate
Most Paycheck Friendly Places
SmartAsset's interactive map highlights the most paycheck friendly counties across the country. Zoom between states and the national map to see data points for each region, or look specifically at one of the four factors driving our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology Our study aims to find the most paycheck friendly places in the country. These are places in the country with favorable economic conditions where you get to keep more of the money you make. To find these places we considered four different factors: semi-monthly paycheck, purchasing power, unemployment rate and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances. We applied relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties we assumed a $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment rate index that shows the counties with the lowest unemployment. For income growth, we calculated the annual growth in median income over five years for each county and indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2017 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics