Kentucky Business Taxes for LLCs

Filing fee: $40 (online) / $40 (paper)

Processing time: 3–5 business days (online)

State agency: Kentucky Secretary of State

Annual report due: June 30 each year

State tax rate: 5% flat individual income tax; LLET minimum $175/year; 6% sales tax

Kentucky LLCs face 3 main state-level taxes: the Limited Liability Entity Tax (LLET), state income tax on pass-through profits, and sales tax if you sell taxable goods or services. On top of those, you'll owe federal self-employment tax and federal income tax on your share of LLC income. Most small Kentucky LLCs pay the LLET minimum of $175 per year.

Kentucky is one of the few states that taxes LLCs at the entity level through the LLET — even though the LLC's net income still passes through to owners for income tax purposes. That combination catches a lot of first-time Kentucky business owners off guard.

Here's a quick breakdown of what applies to most Kentucky LLCs:

• LLET — paid by the LLC itself, minimum $175/year
• State income tax — paid by owners on their share of LLC profits at a flat 5% rate
• Sales and use tax — 6% statewide, applies if you sell taxable goods or certain services
• Federal self-employment tax — paid by owners on net earnings from the LLC
• Federal income tax — paid by owners on their share of LLC income
• Payroll taxes — applies if your LLC has employees

The Kentucky Limited Liability Entity Tax (LLET) is a state-level tax on every LLC doing business in Kentucky, calculated on gross receipts or gross profits — not net income. If your LLC's total gross receipts or total gross profits from all sources are $3 million or less for the year, you owe the flat minimum of $175.

For LLCs above the $3 million threshold, the LLET scales up. Between $3 million and $6 million in gross receipts or gross profits, a sliding-scale formula applies. Above $6 million, the LLET is calculated by multiplying Kentucky gross receipts by 0.095% and Kentucky gross profits by 0.75% — and you pay whichever amount is smaller.

The LLET is reported on Kentucky Form 720 (or Form 725 for single-member LLCs) and filed with the Kentucky Department of Revenue. A tax professional can help you figure out which form applies to your LLC and whether any credits offset your LLET liability.

Kentucky taxes LLC owners on their share of LLC income at a flat 5% state income tax rate. The LLC itself doesn't pay state income tax on its net income — that income passes through to the members, who report it on their individual Kentucky returns. This is separate from the LLET, which the LLC pays regardless of profitability.

If your LLC is taxed as a C Corporation for federal purposes, Kentucky's 5% corporate income tax applies to the LLC's Kentucky taxable net income at the entity level instead.

Most LLC owners also owe federal self-employment tax (15.3% on net earnings up to the Social Security wage base) on top of their state and federal income tax. A tax professional can help you figure out estimated payment schedules so you're not caught short at year end.

Kentucky charges a flat 6% sales tax on retail sales of taxable tangible personal property, digital property, and certain services. There are no additional local sales taxes in Kentucky — the 6% rate is statewide and uniform. If your LLC sells taxable goods or covered services at retail, you need to collect and remit this tax.

Kentucky also has a complementary 6% use tax. If your LLC buys taxable goods from out-of-state sellers and doesn't pay Kentucky sales tax at the time of purchase, use tax applies to those items when they're used or stored in Kentucky.

To collect sales tax, register your LLC for a sales and use tax account through the Kentucky Department of Revenue at MyTaxes.ky.gov. Once registered, you'll file periodic returns and remit the tax you've collected. Not every LLC needs a sales tax account — if you only sell exempt goods or services, registration may not be required. Talk to a tax professional if you're unsure whether your products or services are taxable.

If your Kentucky LLC has employees, you're responsible for withholding Kentucky state income tax from their wages and remitting it to the Kentucky Department of Revenue. Before you can withhold, you need to register for a Kentucky withholding tax account — you can do that through MyTaxes.ky.gov.

Each employee needs to complete a Kentucky Withholding Certificate (Form K-4) so you can calculate the correct withholding amount. Kentucky law under KRS Chapter 141 requires withholding for all employees paid wages in Kentucky.

On top of state withholding, you'll also handle federal payroll obligations: withholding federal income tax, paying the employer's share of Social Security and Medicare (FICA), and filing quarterly Form 941 with the IRS. If you're new to payroll, a payroll provider or accountant can help you stay on track from the first paycheck.

Before registering for Kentucky business tax accounts, your LLC needs to be legally formed with the Kentucky Secretary of State. Once that's done, register for state tax accounts through the Kentucky Department of Revenue using the Kentucky Tax Registration Application, available online at MyTaxes.ky.gov.

The registration application lets you set up multiple tax accounts in one filing — sales and use tax, employer withholding, and others. You'll need your LLC's legal name as it appears in your formation documents, your federal Employer Identification Number (EIN), your Kentucky start date, your primary business address, and contact information for the responsible parties.

After the Department of Revenue processes your application, it will issue your Kentucky tax account numbers and mail filing instructions for each account. Keep those account numbers on file — you'll need them every time you file a return or make a payment.

• Form your LLC with the Kentucky Secretary of State first
• Apply for an EIN from the IRS at irs.gov/ein if you haven't already
• Complete the Kentucky Tax Registration Application at MyTaxes.ky.gov
• Register for each applicable account: LLET, sales and use tax, employer withholding
• Receive your Kentucky tax account numbers by mail and save them for future filings