Active Duty Military Pay Income Tax Exemption
Kentucky does not tax active duty military pay. All military pay received by members of the Armed Forces while on active duty can be excluded from Kentucky income. (KRS 141.019(1)(I)).
KRS 141.175(1)(a): Active Duty means the day you assemble at your armory or other designated place until the day you return there and have been properly relieved, including:
1. Fractional parts of a day which count as a full day; and
2. All days of active duty for training and inactive duty training.
KRS 141.175(1)(b): Armed Forces means the military forces of the United States and the Commonwealth, including the: Army, Navy, Air Force, Marine Corps, Coast Guard, National Guard, and any Reserve branch of the Army, Navy, Air Force, Marine Corps, or Coast Guard.
Subtract active duty military pay from income on your Kentucky return. Full-year residents should subtract this income on Kentucky Schedule M. Part-year residents should subtract this income under the Adjustments to Income section on Form 740-NP, and the subtraction should be labeled "active duty military pay."
Kentucky income tax is not required to be withheld from active duty military pay. If Kentucky income tax is incorrectly withheld from your active duty military pay after 2009, the Kentucky Department of Revenue will refund the tax withheld. Also, if the your only income is active duty military compensation, you are not required to file a Kentucky income tax return unless Kentucky income tax was withheld. You would need to file a return to recover any Kentucky income tax withheld.
You are considered a Kentucky resident for income tax purposes if your state of legal residence with the military is Kentucky. The active duty military pay exemption applies to all Kentucky servicemembers regardless of where they are stationed. If you were a Kentucky resident at the time you joined the military but are now stationed outside of Kentucky, you are still considered a Kentucky resident for income tax purposes and should file Kentucky Form 740.
Serving Outside the United States
Kentucky residents who are in the military are often granted extensions for tax filings when serving outside the United States. Any extension granted for federal income tax purposes will be honored for Kentucky income tax purposes.
Combat Zone Extension—Members of the Army, Navy, Marines, Air Force, or Public Health Service of the United States government who serve in an area designated as a combat zone by presidential proclamation are not required to file an income tax return and pay the taxes, which would otherwise become due during the period of service, until 12 months after the service is completed. Members of the National Guard or any branch of the Reserves called to active duty to serve in a combat zone are granted the same extension.
Interest and Penalties: Interest at the "tax interest rate" applies to any income tax paid after the original due date of the return. If the amount of tax paid by the original due date is less than 75 percent of the tax due, a late payment penalty may be assessed (minimum penalty is $10).
Interest and penalty charges can be avoided or reduced by sending payment with your extension request by the due date. If you wish to make a payment prior to the due date of your return when using the:
Kentucky Extension: Complete Section II, Kentucky Extension Payment Voucher, of Form 740EXT Application for Extension of Time to File and send with payment. Write "KY Income Tax—2023" and your Social Security number(s) on the face of the check.
Federal Automatic Extension: Make a copy of the lower portion of the federal Form 4868 Application for Automatic Extension and send with payment. Write "KY Income Tax—2023" and your Social Security number(s) on the face of the check.
Retirement Income Exclusion
For all individuals, Kentucky allows a pension income exclusion of up to $31,110* for all pension and retirement income that is reported as taxable and included in the federal adjusted gross income. Enter this subtraction on Schedule M Kentucky Federal Adjusted Gross Income Modifications.
If you are retired military, you may be able to exclude more than $31,110*. If you are retired military and receive a federal pension income greater than $31,110*, you will need to complete Kentucky Schedule P Kentucky Pension Income Exclusion to determine how much of your pension income is taxable. You may use the worksheet in the Schedule P instructions or use
the Schedule P calculator to determine your exempt percentage.
*($41,110 for taxable year 2017 and earlier)
Please visit the IRS website for additional information regarding military issues.