Before you start

An SSN or ITIN
Form W-4 with your employer for federal withholding, and Form K-4 for Kentucky
Confirmation from payroll that both local occupational fees are being withheld
Records of foreign income and foreign financial accounts

Step-by-step

1
Complete the W-4 and K-4 on day one
Kentucky has its own withholding certificate alongside the federal W-4. With a flat rate and a small standard deduction the state calculation is simple, but getting the federal form wrong is still the commonest cause of an April surprise.
Via employerWho: YouFirst week of employment
2
Check both local occupational fees are on your payslip
The urban county's 2.25% applies to compensation for work in Fayette County regardless of where you live. The school board's 0.5% applies only if you are a Fayette County resident. If you moved into the county mid-year, or you work outside it, ask payroll to confirm which lines should be there.
Via employerWho: You and your employerFirst payslip
3
Determine your US tax residency
The substantial presence test counts weighted days over three years to decide whether the US taxes your worldwide income or only US-source income. Your visa category does not decide this.
OnlineWho: You
4
Check for an applicable tax treaty
The US has treaties with around 70 countries that can reduce or exempt tax on particular income. Kentucky starts from federal adjusted gross income, so a federal treaty exclusion generally carries through to the state return.
OnlineWho: You
5
File federal and Kentucky returns by 15 April
The tax year is the calendar year. Kentucky's flat rate and $3,360 standard deduction for 2026 make the state return short — but the local occupational fees are separate from it and are normally settled entirely through payroll withholding.
OnlineWho: YouBy 15 April annually
6
File an FBAR if foreign accounts exceed $10,000
Aggregate foreign account balances over $10,000 at any point in the year trigger a FinCEN filing, separate from and additional to your tax return.
OnlineWho: You

Documents you’ll need

Form W-2 from each employer, issued by 31 January
Form 1099s for freelance, interest and investment income
Passport and travel history for the substantial presence day count
Foreign account statements for FBAR reporting

Things most newcomers don’t know

The Revenue Cabinet's own summary page still says 4%.

House Bill 1 set the rate at 3.5% for tax years beginning on or after 1 January 2026, and the Department of Revenue's 2026 withholding formula uses 3.5% with a $3,360 standard deduction. Its general individual-income-tax page reads 4%, which is right for the 2025 return and wrong for the year you are earning in. Two official pages, two numbers, both correct about different years — check which year a source is describing before you plan around it.

Source: Kentucky Department of Revenue — 2026 withholding tax formula

The local wage tax has a resident layer and a workplace layer.

The urban county's 2.25% follows the work: anyone earning compensation for activities in Fayette County pays it, commuters included. The school board's 0.5% follows residency as well: it applies to Fayette County residents for work performed in the county. So crossing the county line in either direction changes what you owe, and neither figure appears anywhere on your Kentucky state return.

Source: Lexington-Fayette Urban County Government — occupational licence fee rates

There is no local sales tax anywhere in Kentucky.

The state rate is 6% and municipalities cannot add to it, which is unusual — in most US states the advertised state rate is only part of what you pay at the till. Shopping in Lexington and shopping in a small Kentucky town cost the same in tax.

Source: Kentucky Department of Revenue — sales and use tax

Kentucky assesses property at 100% of fair cash value.

The Fayette County PVA values property at full market value as of 1 January each year and the rates apply to that. Comparing a Kentucky tax rate against a state that assesses a fraction of value first — Colorado assesses 6.8% — produces a completely misleading answer. Kentucky also taxes vehicles as property, annually.

Source: Fayette County Property Valuation Administrator

Common mistakes to avoid

Planning around the 4% rate shown on the Revenue Cabinet's summary page when 2026 is 3.5%.
Forgetting the local occupational fees when comparing a Lexington salary with one in a state that has no local wage tax.
Assuming a reciprocity or credit arrangement covers the local fees — those agreements deal with state income tax only.
Being self-employed in Fayette County and not filing a net profits return with the urban county government.
Missing the FBAR because a home-country account did not feel 'foreign'.

Some of this may be out of date. Spotted something inaccurate? Help us keep it right for the next newcomer.