Kentucky Payroll Tax Default Prevention Checklist

monthly ($2,000 to $49,999 per year), and twice-monthly ($50,000 or more per year).

Employers who accumulate $100,000 or more in Kentucky income tax withheld during

any reporting period must remit payment within one banking day. If returns are not filed or the due dates are not met, the state's system flags your account for follow-up action.

Why the State Issued This or Requires This

Kentucky requires payroll tax reporting and payment to fund state operations and ensure employees receive proper tax credits. Employers are responsible for remitting these funds on behalf of their employees. When payments are missed or returns are unfiled, the state loses expected revenue and cannot accurately track employment tax compliance.

The Department of Revenue initiates contact when it identifies gaps in filing or payment records. This typically happens through automated systems that compare your filed returns against expected payment schedules, or when you receive a notice requesting missing documents or unpaid amounts. If the specific reason for state action is unclear, you can contact the Kentucky Department of Revenue directly to ask why a notice was issued.

What Happens If This Is Ignored

If unpaid payroll taxes or unfiled returns are not addressed, the state typically escalates collection efforts. This may include additional notices, increased penalties and interest charges, wage garnishments, bank levies, or liens against business or personal property.

The longer the unpaid payroll tax debt remains unresolved, the larger the total amount owed becomes due to accumulating interest and penalties. Kentucky's tax interest rate for 2026 is nine percent, and the rate changes annually. The state also has broad authority to pursue collection through multiple methods simultaneously. Kentucky

follows a five-year statute of limitations for collecting unpaid payroll taxes, beginning on the date of assessment.

Continued non-compliance may result in additional regulatory action or referral to the state attorney general's office. Corporate officers may be held personally liable for payroll taxes under Kentucky law.

What This Does NOT Mean

Receiving a payroll tax notice does not automatically mean you are being criminally prosecuted or that your business license will be immediately revoked. It also does not mean the state has frozen your bank accounts or filed a lien; these are separate enforcement actions that occur later if earlier collection attempts are unsuccessful.

A single missed payment or late return does not automatically trigger the most severe collection methods. The state typically issues notices and allows time for response before escalating to more serious enforcement tools. If you have not yet received a formal notice, simply identifying that payroll taxes may be unpaid does not mean penalties are already being assessed; penalties typically begin accruing once amounts become past due.

Checklist: Kentucky Payroll Tax Default Prevention and

Response

Step One: Gather Your Payroll Tax Records

• Locate your payroll tax return filings (Form K-1 for monthly or quarterly

periods, and Form K-3 for annual reconciliation) for the past two years.

• Find bank statements or payment confirmations showing when payroll taxes

were submitted.

• Collect pay stubs, payroll registers, or records showing employee wages and

tax withholdings.

• Retrieve any notices, letters, or documents from the Kentucky Department of

Revenue.

• Note the specific tax periods or quarters affected.

Step Two: Verify What Is Currently Owed

• Review the Kentucky Department of Revenue website at revenue.ky.gov to

understand current Kentucky payroll tax default-prevention requirements, filing frequencies, and withholding rates (4% for 2025, dropping to 3.5% for 2026).

• Contact the Kentucky Department of Revenue Employer Payroll Withholding

section at (502) 564-7287 to request an account transcript or statement showing unfiled return periods, outstanding balance amounts, penalties and interest assessed, and any enforcement actions initiated.

• Ask the Department of Revenue representative to confirm whether the issue is

unfiled returns, unpaid amounts, or both.

• Request written documentation of the current debt amount and outstanding

filing obligations.

• Ask whether a notice has already been issued and, if applicable, what the

response deadline is.

Step Three: File Any Missing Returns

• If the issue is unfiled payroll tax returns, gather payroll records for the missing

periods.

• Complete the appropriate form based on your filing frequency: Form K-1 for

monthly or quarterly periods, or Form K-3 for annual reconciliation with the final period of the year.

• Calculate total wages paid and income taxes withheld for each period using

your payroll records.

• Include any adjustments or corrections noted in your records.
• Sign and date the completed returns.
• File the returns electronically through the MyTaxes.ky.gov portal, as all

employer filing frequencies are required to be electronically filed and paid per

Kentucky regulation 103 KAR 18:150.

• Keep copies of filed returns and confirmation receipts for your records.

Step Four: Address Unpaid Tax Amounts

• If the issue is unpaid payroll taxes, verify the exact amount owed by contacting

the Department of Revenue at (502) 564-7287.

• If you can pay the full amount immediately, prepare an electronic payment for

the outstanding balance.

• Include documentation with your payment identifying your business name and

federal employer identification number (EIN), the tax periods covered by the payment, the amount being paid, and your contact information.

• Pay electronically through the MyTaxes.ky.gov portal or as specified by the

Department of Revenue.

• Keep a copy of your payment confirmation and any receipt provided.

Step Five: If You Cannot Pay the Full Amount

• Contact the Kentucky Department of Revenue to request payment plan

options tailored to your situation.

• Ask about available installment agreements and payment arrangement terms.

Kentucky does offer payment plans and installment agreements for payroll tax debts as standard practice.

• Request written information on any alternative payment arrangements and the

terms involved.

• Clarify whether entering into a payment arrangement affects the accrual of

penalties or interest.

• If a payment arrangement is approved, obtain written confirmation of the

terms, including payment amounts, payment dates, and consequences if a payment is missed.

Step Six: Respond to Any Notices Within the Stated Deadline

• If you received a formal notice from the Department of Revenue, note the

response deadline clearly.

• Do not ignore the deadline, even if you are still gathering information or

arranging payment.

• If you cannot meet the deadline, contact the Department of Revenue at (502)

564-7287 before it expires to explain your situation and request additional time.

• Request written confirmation if you are granted more time to respond.

Step Seven: Request Written Documentation of Resolution

• After filing missing returns or making payments, request written confirmation

from the Department of Revenue stating that all outstanding returns have

been filed, that the balance has been paid or a payment arrangement has been established, and the current status of your account.

• Ask when you can expect any refunds of overpaid taxes or credits.
• Request clarification on whether penalties or interest will be reduced or

abated, as penalties do not automatically disappear upon payment of taxes.

Step Eight: Update Your Payroll Tax Compliance Going Forward

• Review your current payroll tax filing and payment schedule with the

Department of Revenue to confirm you are assigned to the correct frequency based on annual withholding amounts.

• Confirm the correct due dates for future returns and any required payments.
• Set reminders or calendar notifications for all upcoming payroll tax filing and

payment deadlines.

• Consider implementing a system to track payroll tax obligations and ensure

timely compliance.

What Happens After This Is Completed

Once missing returns are filed and unpaid amounts are addressed, the Kentucky

Department of Revenue typically processes your submission and updates your account status. The state usually sends written confirmation of receipt and current account status, though the exact timeframe varies.

If a payment arrangement is established, you will receive written terms outlining payment schedules and obligations. Continued compliance with the arrangement prevents further enforcement action, while missed payments on the arrangement may

result in escalated collection efforts. Penalties and interest already assessed typically remain on your account unless you request penalty abatement or relief separately.

Common Mistakes to Avoid

Missing Response Deadlines: Failing to respond to a Department of Revenue notice by the stated deadline often triggers automatic escalation of collection actions. Always note deadlines clearly and contact the state if more time is needed.

Submitting Incomplete Returns: Filing a payroll tax return without all required information or with inaccurate wage and withholding amounts may result in rejection or an assessment of estimated amounts by the state. Verify completeness before submitting.

Not Keeping Copies of Payments and Filings: Without proof of payment or filed returns, disputes about whether obligations were met become difficult to resolve.

Always retain copies and receipts.

Ignoring Follow-Up Notices: Multiple notices may be issued if initial notices go unaddressed. Each ignored notice increases the risk of wage garnishments, bank levies, or liens.

Assuming Penalties Will Be Removed Automatically: Penalties and interest do not automatically disappear once taxes are paid. Requesting penalty relief is a separate process that requires specific action.

Failing to Update Payment Schedules: If your business size, employee count, or payroll pattern changes, your filing and payment obligations may change. Not updating these with the state can create new compliance problems.

Frequently Asked Questions

Does the state charge interest on unpaid payroll taxes?

Yes, Kentucky assesses interest on all unpaid tax amounts at rates set annually by the

Commissioner. The interest rate for 2026 is nine percent. Contact the Department of

Revenue to find out how much interest has accrued on your specific account.

Can I get penalties removed or reduced?

The Department of Revenue has the authority to consider penalty relief requests in certain circumstances. You need to submit a separate request explaining your situation.

The state does not automatically remove penalties once taxes are paid.

How long does the Department of Revenue have to collect unpaid payroll taxes?

Kentucky follows a five-year statute of limitations for unpaid payroll taxes from the date of assessment.

If I file missing returns now, will I still owe penalties for filing late?

Yes, late filing penalties typically apply to returns filed after their original due date, regardless of when they are ultimately submitted.

What happens if I enter into a payment plan and then miss a payment?

Missing a payment on an approved arrangement typically allows the state to resume collection action, which may include wage garnishments or bank levies. Contact the

Department of Revenue immediately if you cannot make a scheduled payment.

Does filing missing returns stop the state from taking collection action?

Filing returns addresses the compliance issue but does not automatically stop collection efforts for unpaid amounts. The state may continue pursuing payment through other means unless a specific arrangement is in place.

Are personal assets at risk if my business owes unpaid payroll taxes?

Corporate officers can be held personally liable for unpaid payroll taxes under Kentucky law. The state's ability to pursue personal assets depends on the business structure and specific circumstances.

How do I know if a wage garnishment or bank levy has been issued against me?

Employers and financial institutions typically receive notices when a garnishment or levy is issued. These notices explain the amount and the process for response.

Can I appeal a Department of Revenue notice or assessment?

Kentucky law provides an appeal process for tax assessments and collection actions.

Contact the Department of Revenue to ask about appeal rights for your specific situation.

Facing State Tax Enforcement Action?

If you’ve received a notice related to sales tax or payroll tax enforcement and are unsure how to respond, our team can help you understand your options and next steps.

We help with

• State enforcement notices and responses
• Sales tax audits, assessments, and collections
• Payroll & trust fund tax enforcement issues
• Penalty and interest reduction options
• Payment plans and state tax relief eligibility
• Representation before state tax agencies

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