What would the IRS flag about how you've been paying your nanny?

Kentucky has a flat 3.5% state income tax, but several cities including Louisville and Lexington impose local occupational taxes that employers must also withhold.

State unemployment insurance (SUI). Kentucky requires household employers to register and pay state unemployment tax once wages cross its applicable threshold. New York and DC use $500 per quarter; many states use $1,000. New-employer rate range in Kentucky: 0.3% - 9%. Missing the registration is one of the most common audit findings — the simulator flags it when your quarterly wages cross the applicable threshold.

State income tax withholding. Kentucky has state income tax, which means you may need to withhold from your nanny's paycheck (it depends on whether they elect withholding on the state W-4 equivalent). If they do, you owe quarterly remittance and an annual state W-2 reconciliation. The simulator flags missing withholding setup or unreported wages.

Local income taxes. Kentucky has significant local income tax layers — the local occupational license tax applies in most cities and counties. Depending on where the employee actually works (resident vs. work locality), you may need to register with multiple local agencies. The simulator flags missing local registrations.

Minimum wage. The minimum wage in Kentucky is $7.25/hour (federal). If you paid below this rate, the simulator surfaces it as a Department of Labor exposure — separate from tax findings, and often more expensive (back wages plus liquidated damages).

Run the audit above to see exactly which Kentucky rules apply to your situation — each finding comes with dollar exposure and a concrete next step.