Does Kentucky tax military retirement?

Partly. The share earned before January 1, 1998 is fully exempt. The rest counts toward a $31,110-per-person retirement exclusion, and anything above that is taxed at 3.5% (2026).

How much retirement income is tax-free in Kentucky?

Up to $31,110 per person per year, across all pensions, IRAs, 401(k)s and annuities combined.

What is the Kentucky homestead exemption for 2026?

$49,100 off assessed value for homeowners 65 and older, or totally disabled, for 2025–2026. Apply with your county PVA by December 31.

Kentucky retirement taxes in 2026: military retired pay, pensions and Social Security

Short answer

Kentucky does not tax Social Security. Military retired pay, pensions, IRA and 401(k) withdrawals are taxed at Kentucky's flat 3.5% rate (2026), but each person can exclude up to $31,110 of retirement income a year. The part of a military or federal pension earned before January 1, 1998 is fully exempt, so someone who retired before 1998 pays no Kentucky tax on it.

Not tax advice. Rules change; confirm with the Kentucky Department of Revenue or a tax professional.

Kentucky at a glance (2026)

	Kentucky
State income tax	Flat 3.5% (2026), down from 4% in 2025
Social Security	Not taxed
Military retired pay	Taxed, after the $31,110 exclusion; service before Jan 1, 1998 fully exempt
Pensions, IRA, 401(k)	Taxed, after the $31,110 exclusion (one combined cap per person)
Survivor Benefit Plan	Counts toward the $31,110 exclusion
Active-duty pay	Not taxed
65+ homestead exemption	$49,100 off assessed value (2025–2026)
Disabled veteran	Same $49,100 exemption, if totally disabled (100% or Individual Unemployability)
Average property tax	About 0.74% of home value a year

Income tax rate

Kentucky's individual income tax is a flat 3.5% for 2026, with a $3,360 standard deduction. The rate was 4% in 2025. Source: Kentucky Department of Revenue, 2026 Withholding Tax Formula (Oct 2025); 2025 HB 1.

Military retired pay

Kentucky does not fully exempt military retired pay. It works in two steps:

1. The pre-1998 share is fully exempt. If you retired before January 1, 1998, your whole military pension is exempt. If you retired after December 31, 1997, divide your months of service before January 1, 1998 by your total months of service; that percentage of your pension is exempt. 2. The rest gets the $31,110 exclusion. The remaining pension, plus any other retirement income (IRA, 401(k), TSP, other pensions), is excluded up to $31,110 per person. Anything above that is taxed at 3.5%.

The same pre-1998 rule applies to federal civilian and Kentucky state and local government pensions. Active-duty pay is fully exempt.

Example: a retiree who served 1990–2010 (240 months, 96 of them before 1998) gets 40% of the pension exempt, then up to $31,110 of the rest.

Sources: Kentucky Department of Revenue, Schedule P (2025); "Military Tax Issues" and "Military Exemptions" pages.

Pensions, IRA and 401(k)

Up to $31,110 per taxpayer is excluded each year. Spouses each get their own $31,110. It's one combined cap covering pensions, IRA distributions, 401(k)s, annuities and death benefits. The amount has been $31,110 since tax year 2018. Source: Kentucky Department of Revenue, Schedule P (2025), line 3; 2025 Form 740 instructions.

Survivor Benefit Plan

SBP annuities aren't separately exempt. They count toward the survivor's $31,110 exclusion. Source: U.S. Air Force, My Air Force Benefits, Kentucky page (reviewed Oct 2025).

Property tax breaks for homeowners 65+

Homestead exemption: $49,100 off the assessed value of your home for 2025–2026. The amount is reset every two years for inflation.

Who: you're 65 or older during the tax year, and you own and live in the home on January 1.
How: apply to your county Property Valuation Administrator (PVA) by December 31 of the year you qualify. You don't reapply each year. One exemption per home.

Sources: Kentucky Department of Revenue news release, Nov 14, 2024; Homestead Exemption historical data.

Disabled veterans

The disability exemption is the same $49,100. It covers veterans who are totally disabled through a federal program, including a service-connected total disability, or a lower VA rating with Individual Unemployability. A 70% or 90% rating alone doesn't qualify. You can't claim both the age and the disability exemption. Source: Kentucky Department of Revenue, Homestead Exemption Manual (2023).

Property tax overall

Kentucky homeowners pay about 0.74% of their home's value in property tax a year on average. Source: Tax Foundation, 2026 Kentucky profile.

Common mistakes

Assuming military retired pay is fully exempt. That's only true if you retired before 1998.
Treating the $31,110 as separate buckets. It's one cap per person, covering pension, IRA, 401(k) and SBP together.
Missing the December 31 PVA deadline for the homestead exemption.
Expecting a partial veteran exemption. Kentucky has none by rating; it's total disability or nothing.

Moving here?

PCS to Fort Knox: Fort Knox BAH, neighborhoods and drive times
Retiring in Hardin County: what your home sale leaves you, and the drive to care
Fort Campbell sits on the Kentucky–Tennessee line: Fort Campbell guide · Tennessee retirement taxes
Federal rules: Is military retirement taxable?

Questions about Kentucky? Chris Harris lives in Radcliff and is licensed in Kentucky. Ask Chris →

FAQ

Does Kentucky tax military retirement?: Partly. The share earned before January 1, 1998 is fully exempt. The rest counts toward a $31,110-per-person retirement exclusion, and anything above that is taxed at 3.5% (2026).
Does Kentucky tax Social Security?: No.
How much retirement income is tax-free in Kentucky?: Up to $31,110 per person per year, across all pensions, IRAs, 401(k)s and annuities combined.
What is the Kentucky homestead exemption for 2026?: $49,100 off assessed value for homeowners 65 and older, or totally disabled, for 2025–2026. Apply with your county PVA by December 31.
What is Kentucky's income tax rate in 2026?: A flat 3.5%.

Sources

Last reviewed October 21, 2026. Not tax advice.