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State guides · KY

How Kentucky taxes retirement income

Some 2026 figures pending confirmation  Tax year 2026 · research last updated October 2, 2026

  • Kentucky doesn't tax Social Security benefits.
  • Exclusions and subtractions for retirement income (details below):
    • Pension income exclusion: at most $31,110 per person.
  • Rates for 2026: 3.5% flat rate.

At a glance

Income taxYes
Rates (2026)3.5% flat rate
Starts fromFederal adjusted gross income (AGI)
Standard deduction$3,360 single, $3,360 married filing jointly
Age 65 and older$40 extra credit per person
Social SecurityNot taxed
Retirement income exclusions1 (see below)
Roth conversionsTaxable
Capital gainsTaxed like other income
Local income taxYes, in some places (see below)

Social Security

Kentucky doesn't tax Social Security benefits.

Pensions, IRAs and 401(k)s

Pension income exclusion (Schedule M line 9)

Limit: $31,110 per person · Applies to: pensions, annuities, IRA distributions, Roth conversions, 401(k) distributions, 403b, 457, deferred compensation, disability retirement, death benefits

100% of taxable retirement benefits or $31,110, whichever is less, per taxpayer; each spouse computes their own exclusion regardless of filing status (joint filers add the two amounts). No age requirement. All pension and retirement income paid under a written retirement plan (qualified or unqualified) qualifies: pensions, annuities, IRAs, 401(k) and similar deferred compensation, income from converting a traditional IRA to a Roth IRA, death benefits, disability retirement. Social Security is exempt separately and does NOT reduce the $31,110 cap. Federal, Kentucky state and Kentucky local government pensions with service before 1/1/1998 may exclude more via Schedule P.

Roth conversions

A Roth conversion counts as taxable income for Kentucky. Whether a retirement income exclusion can cover part of it depends on the rules above.

Capital gains

Taxed like other income, at the rates above.

Credits and relief for older residents

  • Personal tax credits (Schedule ITC Section B): $40 for each taxpayer/spouse age 65 or over, $40 for each who is blind ($80 if both); nonrefundable.
  • Family Size Tax Credit: for low modified gross income (2025 threshold $15,650 family of one, $21,150 two; credit phases down to 133% of threshold, MGI $42,760 max for family of four). MGI includes Social Security and pension income excluded from AGI, so few retirees qualify.

Local income taxes

Many Kentucky cities/counties levy occupational license taxes on wages and net business profits (e.g., Louisville Metro). They do not apply to Social Security, pensions, IRA distributions, interest, dividends or capital gains, so a retiree without wages is generally unaffected. Some school districts levy a utility tax, not an income tax.

More detail from our research notes

Kentucky AGI = federal AGI +/- Schedule M; taxable income = KY AGI - standard deduction ($3,360 for 2026) or KY itemized deductions (itemizing restricted; medical, state/local taxes and some others not deductible). Flat 3.5% for 2026 (4% in 2025). The standard deduction is $3,360 per return on a joint return, but married couples may file 'married filing separately on a combined return' (Form 740 status 3), where each spouse claims $3,360 and their own income; under a flat tax this is usually $117.60 cheaper than joint. Each spouse's $31,110 pension exclusion applies under any status. For TY2026 Kentucky conforms to the IRC as of Dec. 31, 2025 (HB 757 of 2026), i.e. it follows OBBBA for AGI and itemized deductions, but not the federal senior/tips/overtime/car-loan deductions (no federal standard deduction is used anyway). The rate stays 3.5% for TY2027 and TY2028 (KRS 141.020(2)(g); OSBD found the triggers not met for FY2024-25 and FY2025-26); the earliest possible cut is TY2029 and it needs an act of the General Assembly. Taxable Social Security included in federal AGI is subtracted (Schedule M line 10).

Pending confirmation

These points were still being confirmed against Kentucky's published 2026 forms when this page was built. Most are waiting on forms the state publishes around the turn of the year.

3 items
  • Pension exclusion $31,110 confirmed in KRS 141.019(1)(g)1.b as re-enacted by 2026 Ky. Acts ch. 161 (HB 757) s. 7. The $40 65+/blind credits are in KRS 141.020(3), which the 2026 session did not amend (2026 Table of KRS Sections Affected), so unchanged.
  • Family Size Tax Credit 2026 thresholds not published in sources reviewed (2025 figures shown); expected in the 2026 Form 740 instructions, about January 2027, https://revenue.ky.gov/Forms.
  • 2026 IRC conformity: HB 757 (2026) s. 6 moves KRS 141.010(21) to the IRC as of Dec 31, 2025 for TY2026 (so OBBBA itemized-deduction changes such as the 0.5% charity floor apply), and s. 7 adds 141.019(2)(j)-(m): mortgage interest only on acquisition debt of one principal residence, no federal tips/overtime/car-loan deductions. Whether the new federal 2/37 itemized limit (IRC 68) carries into KY itemized deductions is not addressed; immaterial at 3.5% except for 37%-bracket households.

Sources

Every figure comes from these documents, mostly the state's own forms, instructions and statutes.

  1. 2025 Form 740 instructions pp. 28-30, Instructions for Schedule A: itemized = mortgage/investment interest, charity (60% of KY AGI), gambling losses, short misc list; no taxes or medical; spouses divide by share of income (research/states/itemized.json); 2025 Form 740 instructions: pension exclusion $31,110 incl. IRA and Roth conversions, each spouse separately; Social Security exempt; Schedule ITC personal credits; Family Size Tax Credit; IRC conformity datehttps://revenue.ky.gov/Forms/740%20Packet%20Instructions.pdf
  2. 2026 standard deduction $3,360 (KRS 141.081, inflation adjusted)https://revenue.ky.gov/News/Pages/Kentucky-DOR-Announces-2026-Standard-Deduction.aspx
  3. 2026 tax rate 3.5% and standard deduction $3,360 with DOR worked exampleshttps://revenue.ky.gov/Forms/2026%20Withholding%20Formula.pdf
  4. Personal tax credits $40 for 65+, $40 blind, $20 National Guardhttps://revenue.ky.gov/Business/Pages/Tax-Credits.aspx
  5. KRS 141.020 (current, last amended 2025): (2)(f) 3.5% from TY2026; (2)(g)2.c.ii and 3.c.ii keep 3.5% for TY2027 / TY2028 unless the FY2024-25 / FY2025-26 conditions were met and the General Assembly actedhttps://apps.legislature.ky.gov/law/statutes/statute.aspx?id=56339
  6. OSBD reports to the IJC on A&R: FY2024-25 reduction conditions not met (Sept 2025) and FY2025-26 not met (Sept 4, 2026), so 3.5% holds for TY2027 and TY2028 ( ky-osbd-itrc-fy2026.txt)https://apps.legislature.ky.gov/AgencyReports/IJC/AR/OSBD/ITRC/FY%202026.pdf
  7. 2026 Ky. Acts ch. 161 (HB 757) ss. 6-7: IRC conformity Dec 31, 2025; KRS 141.019 pension exclusion $31,110; itemized-deduction changes from TY2026 ; 2026 Table of KRS Sections Affected shows 141.020 untouchedhttps://apps.legislature.ky.gov/law/acts/26RS/documents/0161.pdf

Taxtirement's Kentucky calculation is also checked against a second, independent implementation on 1,000 random households. How we check our numbers.

See your own years. Taxtirement applies these Kentucky rules, and the federal and Medicare rules, to your household for every year of retirement, and shows the calculation behind each number. Coming November 2026 for iPhone, iPad and Mac.

This page summarizes Kentucky's 2026 rules as Taxtirement applies them, for education and planning. It isn't tax advice, and it doesn't cover every situation (for example part-year residents, businesses or military-only provisions). Rules change; check the state's current instructions, or a tax professional, before you act. Spotted something wrong? Tell us.