If you retired from the U.S. Armed Forces before January 1, 1998, your military retired pay is completely exempt from Kentucky income tax. If you retired after December 31, 1997, you can exclude up to $31,110 of your retired pay. If you have creditable service before January 1, 1998 but retired after December 31, 1997, you may be able to exclude more than $31,110 by working out the extra percentage on Kentucky Schedule P.
There is nothing to file with the state in advance. Claim the exclusion on your Kentucky return, and complete Kentucky Schedule P, Pension Income Exclusion, if you have service before January 1, 1998 and want to exclude more than $31,110.
Your Form 1099-R showing the retired pay, and your retirement paperwork showing your retirement date and any creditable service before January 1, 1998.
