Updated October 5, 2026. Quick answer: Yes, with a large exclusion. Kentucky’s 2025 Form 740 says “Multiply line 11 by 4% (.04) or amount from Schedule J”, and Schedule P excludes up to $31,110 per person of retirement income that includes annuities paid under a written retirement plan.
State retirement-income forms, line by line: Kentucky Schedule M.
How Kentucky treats annuity income
| Item | What the documents say |
|---|---|
| Treatment | Taxed at the flat rate; pension income under a written retirement plan excluded up to a cap |
| 2025 rate | 4% |
| Exclusion | “2025 exclusion amount is 100 percent of taxable retirement benefits or $31,110” |
| Eligible income | “This includes pensions, annuities, IRA accounts, 401(k) and similar deferred compensation plans” |
| Spouses | “A taxpayer and spouse must compute and claim their own” |
A $24,000 example
A retiree whose $24,000 of annuity payments is paid under a written retirement plan is under the $31,110 cap, so the exclusion covers all of it and it adds $0 of Kentucky tax.
If the exclusion did not apply to a given contract, the 4% rate would give $24,000 x 4% = $960. The documents read do not separately address annuities bought outside a retirement plan.
What changes in 2026
The latest documents read print no 2026 change to the way annuity income is taxed.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal side in Topic no. 410, Pensions and Annuities and Publication 575, Pension and Annuity Income.
Related: whether Kentucky taxes pensions, how Kentucky taxes retirement income, state tax on 401(k) and IRA withdrawals, how a surrendered annuity is taxed, and pension and annuity decisions.
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Answer againSources
- Schedule M, Kentucky Federal AGI Modifications 2025 (Kentucky Department of Revenue): https://revenue.ky.gov/Forms/Schedule M (2025).pdf
- Schedule P, Kentucky Pension Income Exclusion 2025 (Kentucky Department of Revenue): https://revenue.ky.gov/Forms/Schedule P (2025).pdf
- Form 740, Kentucky Individual Income Tax Return 2025 (Kentucky Department of Revenue): https://revenue.ky.gov/Forms/740 (2025).pdf
Sources: the primary documents linked above, read on October 5, 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.