Updated October 7, 2026. Quick answer: Only if you live there. Kentucky’s nonresident instructions count pensions only if “pensions and annuities received while a resident of Kentucky” and residents may exclude up to $31,110 per taxpayer for 2025.
How Kentucky treats a pension earned elsewhere
| Item | What the state documents say |
|---|---|
| Nonresidents | A nonresident files Form 740-NP only for income from Kentucky sources. On that form, pensions and annuities are entered in Column B only when received while a Kentucky resident, so a pension received after leaving Kentucky is not carried into the Kentucky column. This rests on the 2025 Form 740-NP instructions. |
| Residents with a pension earned elsewhere | Kentucky adjusted gross income starts from federal adjusted gross income, so a pension earned in another state is included. The 2025 pension income exclusion covers pensions, annuities, IRA accounts and 401(k) plans paid under a written retirement plan, computed separately for each taxpayer. The source says: “100 percent of taxable retirement benefits or $31,110, whichever is less”. A filer who received retirement income from the federal government, the Commonwealth of Kentucky or a Kentucky local government, or supplemental Railroad Retirement Board benefits, must complete Schedule P to determine the exclusion instead of using the flat $31,110. This rests on the 2025 Form 740 instructions for Schedule M, line 9. |
| Part-year residents (year of a move) | A part-year resident files Form 740-NP and reports income received while a Kentucky resident, including pensions in Column B of line 10(a). The pension exclusion of up to $31,110 per taxpayer applies to that Column B amount. The source says: “You may exclude up to $31,110 of pension income per taxpayer”. This rests on the 2025 Form 740-NP instructions. |
| Rate | Kentucky prints a flat individual income tax rate of 4% for 2025. The source says: “the tax rate for individual income tax is 4%”. Kentucky’s 2026 withholding formula prints a lower rate for 2026. |
| Return to file | Full-year residents file Form 740. Nonresidents with Kentucky source income and part-year residents file Form 740-NP. The source says: “File Form 740 if you are a full-year Kentucky resident and meet the filing requirements in the Instructions for Form 740.” |
A $40,000 move-year example
A retiree receives $40,000 of pension in the year of a move: $20,000 before the move date, as a Kentucky resident, and $20,000 after leaving.
The first $20,000 can be taxed by Kentucky; the rest is outside its reach under the federal rule below. At the 4% rate printed for 2025, the tax on it is computed as $20,000 x 0.04 = $800, before any exclusion or credit. Federal tax still applies.
What changes in 2026
Kentucky’s Department of Revenue prints a 2026 income tax rate of 3.5% of taxable income in its 2026 withholding formula.
The federal rule that protects a nonresident
4 U.S.C. 114(a) bars a state income tax on retirement income of an individual “who is not a resident or domiciliary of such State”. Retirement income means any income from a qualified retirement plan, a simplified employee pension, a 403(a) or 403(b) plan, an individual retirement plan, an eligible 457 plan or a governmental plan. Income from a nonqualified deferred compensation plan counts only if it is part of a “series of substantially equal periodic payments” made for life or for a period of at least 10 years, or is a payment after termination of employment from a plan that exists only to provide benefits above the Internal Revenue Code limits, so not every payment is covered. Retired pay of a member of a uniform service is also covered.
Related: how Kentucky taxes retirement income, whether Kentucky taxes pensions, out-of-state pension tax by state, and deferred compensation lump sums after a move.
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Answer againSources
- 2025 Kentucky Individual Income Tax Forms and Instructions, Form 740 (Kentucky Department of Revenue): https://revenue.ky.gov/Forms/740 Packet Instructions.pdf
- 2025 Kentucky Instructions for Form 740-NP, Nonresident or Part-Year Resident (Kentucky Department of Revenue): https://revenue.ky.gov/Forms/740-NP Packet Instructions (2025).pdf
- 2026 Kentucky Withholding Tax Formula (Kentucky Department of Revenue): https://revenue.ky.gov/Forms/2026 Withholding Formula.pdf
- 4 U.S.C. 114, Limitation on State income taxation of certain pension income (U.S. Government Publishing Office, 2023 edition): https://www.govinfo.gov/content/pkg/USCODE-2023-title4/html/USCODE-2023-title4-chap4-sec114.htm
Sources: the primary documents linked above, read on October 7, 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.