Updated October 30, 2026. Quick answer: Partly. Kentucky’s 2025 differences chart lists federal retirement systems as taxable on the federal return and, for Kentucky, “Partially exempt if retired after December 31, 1997” and “exempt if retired before January 1, 1998”. The general exclusion is up to $31,110 per taxpayer, and Schedule P handles the rest.
What Kentucky does with a FERS or CSRS annuity
| Question | What the Kentucky documents say |
|---|---|
| What the source says | Kentucky’s 2025 differences chart lists federal retirement systems as taxable for federal purposes and, for Kentucky, partially exempt if the retiree retired after December 31, 1997, and exempt if retired before January 1, 1998. |
| Amount or limit | Retirees with federal pension income get the general exclusion of up to $31,110 per taxpayer, and on Schedule P the part of the pension earned from service credit before January 1, 1998 is excludable even above $31,110; the exempt percentage is computed on Schedule P for those who retired after 1997. |
| State rate printed | The 2025 instructions print a 4% individual income tax rate. |
| Change for 2026 | No 2026 change is printed in the state documents cited here. |
In the Kentucky documents’ own words
- “the tax rate for individual income tax is 4%.” (2025 Kentucky Individual Income Tax Forms (740 Packet Instructions))
- “Your entire pension attributable to service credit earned before January 1, 1998” (Schedule P, Kentucky Pension Income Exclusion (2025))
How this differs from other pensions in Kentucky
Other pension and annuity income is 100 percent excludable up to $31,110 per taxpayer, and Schedule P is only needed above that amount when the filer has federal, Kentucky, or Kentucky local government retirement income. The federal pension gets the same $31,110 exclusion plus extra exclusion for pre-1998 service credit. See also Does Kentucky tax pensions? and military retirement pay.
FERS, CSRS and your TSP
The 2025 instructions say the pension exclusion covers IRA accounts, 401(k) and similar deferred compensation plans, and the Schedule P sheet does not count deferred compensation toward the pre-1998 exempt part. For the Thrift Savings Plan itself, see state tax on TSP withdrawals and the TSP calculator.
Where this rule sits on the Kentucky return
The pension income exclusion is computed on Schedule P, Kentucky Pension Income Exclusion, which the 2025 instructions say may be required when a retiree has federal, Kentucky or local government retirement income above the general amount.
Checks before you rely on this answer
- Find your retirement date, because the chart sorts federal retirees into before January 1, 1998 and after December 31, 1997.
- Compare your taxable pension with $31,110, since the instructions say you do not need Schedule P unless you go over it.
- If you retired after 1997, work out the exempt percentage on Schedule P rather than assuming a full or zero exclusion.
What the Kentucky documents leave open
The Kentucky statute page returned only a superseded-statute notice, so no statute is quoted. No age test is printed in the documents read, the Schedule P exempt percentage formula was not worked through here, TSP is not named, and no 2026 booklet exists yet.
Common mistakes
- Assuming the whole annuity is exempt. The chart marks a federal pension as partially exempt if you retired after 1997.
- Skipping Schedule P. The instructions say it may be required for federal retirees above the general amount.
Related: Does Kentucky tax pensions?, Kentucky military retirement pay, Kentucky retirement deduction line by line, and FERS, TSP and Social Security sequencing.
Find the right next step for your situation
About how much do you have invested? Pick the range that fits; your next step appears immediately below.
Compare adviser services and total fees
For U.S. investors with $250,000 or more in investable assets. WiserAdvisor is an independent service matching you with 2 to 3 vetted advisers. Its form asks for your ZIP code and answers to a few questions; a match is not guaranteed.
Free to request, with no obligation to hire. By submitting, you consent to calls, texts and emails from WiserAdvisor and up to three advisers. Advisers pay for introductions.
Clear Money Guide may earn a referral payment for a qualifying completed form. An introduction is not a Clear Money Guide recommendation.
Opens on WiserAdvisor’s site in a new tab.
Explore optional adviser matching
Considering financial advice? Request an adviser introduction with no obligation to hire.
The form is run by Kapitalwise, our advisor-matching partner. Requesting an introduction is free. Submitting the form shares your contact details with advisers, so expect calls and texts. Advisers pay for introductions. Clear Money Guide may earn a referral payment for a qualifying submitted form, whether or not you hire anyone. A match is not guaranteed.
The Kapitalwise form opens here; you stay on this page.
What happens when you press the button
It asks about nine questions: age, investable assets, location; then your name, email and phone number, and verifies the phone by text. Nothing loads and nothing reaches Kapitalwise until you press the button.
Prefer flat-fee or hourly pricing instead? Compare ranges here.
Answer againSources
- 2025 Kentucky Individual Income Tax Forms (740 Packet Instructions): https://revenue.ky.gov/Forms/740 Packet Instructions.pdf
- Schedule P, Kentucky Pension Income Exclusion (2025): https://revenue.ky.gov/Forms/Schedule P (2025).pdf
Read from the state documents linked above on October 30, 2026. General information, not tax advice.