Military Retirement Pay Income Tax Exclusion
Up to $31,110 per year of military retirement pay excluded from Kentucky state income tax.
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Apply directly through the official Kentucky agency.
About this benefit
Eligibility
Retired before January 1, 1998: 100% excluded. Retired after December 31, 1997: may exclude up to $31,110 per year. Service spanning both periods: may exclude more than $31,110 by completing Kentucky Schedule P.
Kentucky's flat income tax rate is 3.5% for tax year 2026 (reduced from 4% via HB 1). At 3.5%, the maximum tax savings is approximately $1,089/year for post-1997 retirees.
How to apply
Claimed on Kentucky income tax return; use Schedule P if service spans the 1998 cutoff.
Verified against official source
Last checked 2026-05-05 against revenue.ky.gov. Always confirm current rates and rules with the Kentucky state agency before applying.
Other Kentucky Tax Benefits
Active Duty Military Pay Income Tax Exclusion
All active duty military pay is 100% exempt from Kentucky state income tax.
VA Disability and Military Disability Retirement Pay Tax Exclusion
VA disability compensation, DIC, and military disability retirement pay are fully excluded from Kentucky income tax.
Homestead Property Tax Exemption (100% Disabled)
$49,100 deducted from assessed home value for 100% disabled veterans, saving approximately $490-$590/year.
$490-$590/year in property tax savings
Motor Vehicle Property Tax Exemption (100% Disabled)
Exemption from state property tax on up to two motor vehicles for 100% disabled veterans.
Up to $225/year for two vehicles
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