Active-duty pay
Partially Exempt
Up to $31,110 of pension and military pay income can be excluded annually.
State Guide · KY
Kentucky — Military Tax Treatment
Kentucky's $31,110 exclusion is shared across all pension and military income — active duty pay, retirement, Guard drill, and SBP all draw from the same pool. Pre-1998 military service income is fully exempt regardless.
Tax treatment at a glance
Guard & Reserve drill pay
Partially Exempt
Guard and Reserve drill pay is likely included within Kentucky's $31,110 general pension/military income exclusion. If you are already using the full cap for retirement income, additional Guard pay is taxable.
Military retirement pay
Partially Exempt
Up to $31,110 of all pension income exempt; military service before 1998 fully exempt.
The numbers · verified for tax year 2025
Top marginal rate
4.0%
Retirement-pay exemption
Up to $31,110
Military retired pay for members who retired before Jan 1, 1998 is fully exempt; those who retired after that date may exclude up to $31,110 of retirement income (Schedule P), with an additional excludable percentage for creditable service earned before 1998.
Standard deduction
Kentucky is a flat 4.0% for 2025 (dropping to 3.5% in 2026) with a $3,270 standard deduction for all filing statuses.
VA disability compensation
Always tax-free
Federally tax-free under 38 USC § 5301. No state taxes VA disability compensation as income — Kentucky included.
Survivor Benefit Plan (SBP)
Follows retirement
SBP annuities compete with military retirement for the $31,110 exclusion cap.
Federal rules that override state law
SCRA — Servicemembers Civil Relief Act
Active-duty servicemembers pay state income tax only to their state of legal domicile — not the state where they are stationed. If you are from Texas and stationed in Kentucky, Kentucky cannot tax your military pay. This applies during all active duty periods and during Guard/Reserve mobilizations on federal (Title 10) orders.
MSRRA — Military Spouses Residency Relief Act
Military spouses can maintain their home-state domicile even when living in a different state due to their servicemember's orders. A spouse who is a Texas resident following their servicemember to Kentucky can keep Texas as their tax domicile and avoid Kentucky state income tax on their wages.
Guard & Reserve — the SCRA gap
SCRA pay protections apply during federal (Title 10) activation orders. During routine drill weekends and state-only activations, Guard and Reserve members are state residents serving in their home state — SCRA does not protect their drill pay from state income tax. Whether Kentucky exempts that pay is the state-specific question answered above.
Filing watch-outs
- 01All military income categories share one $31,110 cap — Guard pay competes with retirement for the same exemption
- 02KY Schedule M for pension and retirement income exclusion
- 03Pre-1998 service income: separately fully exempt — track your service dates
Veteran-specific tax benefits
Disabled veteran homestead exemption.
Official authority
https://revenue.ky.gov/ ↗State tax law changes annually. Verify current rules with the Kentucky Department of Revenue before making any tax decision.
Kentucky military tax — common questions
Does Kentucky tax military retirement pay in 2026?
Kentucky partially taxes military retirement pay. Up to $31,110 of all pension income exempt; military service before 1998 fully exempt.
Does Kentucky tax active-duty military pay?
Kentucky partially taxes active-duty military pay for state residents. Up to $31,110 of pension and military pay income can be excluded annually. Under the SCRA, Kentucky can only tax the military pay of service members who are legally domiciled in Kentucky — not those merely stationed there.
Does Kentucky tax National Guard and Reserve drill pay?
Kentucky partially taxes Guard and Reserve drill pay. Guard and Reserve drill pay is likely included within Kentucky's $31,110 general pension/military income exclusion. If you are already using the full cap for retirement income, additional Guard pay is taxable.
Is VA disability compensation taxed in Kentucky?
No. VA disability compensation is federally tax-free under 38 U.S.C. § 5301, and no state — including Kentucky — taxes it as income.
If I'm stationed in Kentucky but claim another state, can Kentucky tax my military pay?
No. Under the Servicemembers Civil Relief Act (SCRA), active-duty pay is taxable only by your state of legal domicile, not the state where you are stationed. If your domicile is elsewhere, Kentucky cannot tax your active-duty military pay. Military spouses get the same protection under the MSRRA.
Related tools
Other state guides