Updated October 4, 2026. Quick answer: Mostly no, up to a cap. The Department of Revenue says “Kentucky allows a pension income exclusion of up to $31,110” that covers pension and retirement income, military retired pay included, and a retired service member can exclude more for service credit earned before January 1, 1998.
State retirement-income forms, line by line: Kentucky Schedule M.
How Kentucky treats military retired pay
| Item | What the documents say |
|---|---|
| Treatment | Pension income exclusion of up to $31,110 for all pension and retirement income included in federal adjusted gross income, entered on Schedule M |
| Retired military | A retiree with federal pension income above $31,110 completes Schedule P; it excludes federal pension income attributable to service credit earned before January 1, 1998 above the $31,110 |
| Age | None printed |
| Rate on the rest | 4% of net income for taxable years beginning in 2024 and 2025; 3.5% for taxable years beginning on or after January 1, 2026 (KRS 141.020) |
| Edition caveat | The only Schedule P retrievable was the 2023 edition, which prints the same $31,110; the 2026 exclusion amount is not printed in the documents read |
A $30,000 example
A retiree whose only pension income is $30,000 of military retired pay is under the $31,110 cap, so the whole $30,000 is excluded.
Any other pension or retirement income counts against the same $31,110, so a retiree with a second pension has less room for the military pay.
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What changes in 2026
KRS 141.020 prints a rate of 3.5% of net income for taxable years beginning on or after January 1, 2026, down from 4%.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal side in Publication 3, Armed Forces’ Tax Guide.
Related: whether Kentucky taxes pensions, how Kentucky taxes retirement income, military retirement pay by state, and the military retirement calculator.
Sources
- Military Exemptions (Retirement Income Exclusion): https://revenue.ky.gov/Individual/Pages/Military-Exemptions.aspx
- Schedule P Kentucky Pension Income Exclusion (2023): https://revenue.ky.gov/Forms/Schedule%20P%202023.pdf
- KRS 141.020 Levy of income tax on individuals: https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=56339
Sources: the primary documents linked above, read on October 4, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.