Effective for taxable years beginning on or after January 1, 2010, all military pay received by active duty members of the Armed Forces of the United States, members of reserve components of the Armed Forces of the United States, and members of the National Guard is exempt from Kentucky income tax per KRS 141.019(1)(l).
Active duty servicemembers will claim the exemption by excluding military pay when filing a Kentucky individual income tax return. Provided the military member has no income other than military pay, he or she is not required to file a Kentucky income tax return. The active duty military pay exemption applies to all Kentucky servicemembers regardless of where the servicemember is stationed. Kentucky income tax should no longer be withheld from checks received for military pay beginning January 1, 2010. If Kentucky income tax is incorrectly withheld from a servicemember's military pay after 2009, the Kentucky Department of Revenue will refund the tax withheld.
Does Kentucky tax active duty military pay?
No. Beginning with tax year 2010, Kentucky does not tax active duty military pay. Members of the Armed Forces of the United States, members of reserve components of the Armed Forces of the United States, and members of the National Guard may subtract the amount of pay received from active duty military service, including pay received for active service in a combat zone to the extent the income was included in federal Adjusted Gross Income. For full-year residents this income should be subtracted on Kentucky Schedule M and part-year residents should make the subtraction under the Adjustments to Income section on Form 740-NP. The subtraction should be labeled "active duty military pay."
Is Kentucky income tax required to be withheld from active duty military pay?
No. Kentucky income tax is not required to be withheld from active duty military pay.
If my only income is active duty military compensation, am I required to file a Kentucky income tax return?
No. You are not required to file a Kentucky income tax return if you have only received active duty military pay unless you had Kentucky income tax withheld. You would need to file a return to recover any Kentucky income tax withheld.
I was a Kentucky resident when I joined the military, but I am now stationed outside of Kentucky. Am I still considered a Kentucky resident for income tax purposes?
Yes. As long as your state of legal residence with the military is Kentucky, you are considered a Kentucky resident for income tax purposes. You should file Kentucky Form 740.