Kentucky Retirement Income Tax: What Seniors Pay (2026)

Kentucky taxes none of your Social Security and exempts up to $31,110 per person of other retirement income.1 That exclusion covers pensions, IRA withdrawals, and 401(k) distributions alike, and only the amount above it is taxed, at a flat 3.5 percent for 2026 (down from 4 percent in 2024 and 2025). So for many retirees, Kentucky taxes little or none of their retirement income. This guide walks through how Kentucky retirement income tax treats each kind of income, how the exclusion works, and how it factors into paying for care.

The short version: a $31,110 exclusion for each taxpayer shields most retirement income, and the rest is taxed at a low flat rate.

Kentucky Retirement Income Tax at a Glance

Kentucky keeps the rules short, and the headline number, $31,110, does most of the work.1

Social Security is exempt. Kentucky does not tax Social Security benefits.1 Not a dollar of your monthly check is touched by the state.

The first $31,110 of other retirement income is excluded. Pensions, annuities, IRA withdrawals, and 401(k) distributions all share one exclusion of up to $31,110 per person.1 Income above that amount is taxable.

Each taxpayer gets their own exclusion. Kentucky's Schedule P instructions say the exclusion is for each taxpayer, not each return.1

The Kentucky Department of Revenue administers the state income tax and sets the retirement income exclusion.

Kentucky Retirement Income Tax: How It Works

The thing to understand about Kentucky is that it pools your retirement income under one generous exclusion rather than treating each account type differently.

Whatever the source, pension, annuity, IRA, 401(k), or a death benefit paid under a written retirement plan, the income counts toward a single exclusion of up to $31,110 per person.1 You add up your eligible retirement income, subtract the exclusion, and only the remainder is taxable. Because it is per person, a married couple can exclude up to $62,220 between them if each has enough qualifying income.

Schedule P defines what qualifies by the kind of income: all pension and retirement income paid under a written retirement plan is eligible.1 If you retired early and are drawing a pension or distributions, confirm with the Department of Revenue how the exclusion applies to you before you plan withdrawals around it.

One larger break exists on top of this: a person retired from the federal government, the Commonwealth of Kentucky, or a Kentucky local government, with service performed before January 1, 1998, may be able to exclude more than $31,110, computed on Kentucky Schedule P.1 That applies to long-tenured public retirees whose service predates that date. A retiree of another state's government is not on that list.

One thing worth confirming before you file: Kentucky's flat rate has stepped down in recent years.1 Check the rate for the year you are filing with the Department of Revenue rather than assuming last year's rate still holds.

What the Exclusion Does Not Cover

The exclusion is a Kentucky rule only. Federally, pension and annuity payments from a qualified employer retirement plan stay taxable in whole or in part, unless the payment is a qualified distribution from a designated Roth account, and the taxable part is generally subject to federal income tax withholding.1

That matters most for people who stop working before 65, whether by choice, by buyout, or because care needs forced an early exit. The income they draw to bridge to Medicare and Social Security can be sheltered from Kentucky tax and still owe federal tax, so plan for both before counting on the full amount.

What Kentucky Retirement Income Tax Costs You

Kentucky uses a flat income tax. The rate is 3.5 percent for 2026, down from 4 percent in 2024 and 2025.1 So the only retirement income that faces tax is the amount above your $31,110 exclusion, and it is taxed at that single low rate.

What this means in practice:

• If your eligible retirement income is at or below $31,110 per person, Kentucky taxes none of it.1
• If it runs higher, only the excess is taxed, at the flat 3.5 percent rate for 2026.1

Here is a hypothetical to show the mechanic. The figures below are illustrative only, not a real case and not a prediction of your own result.

Say a single retiree draws $45,000 in a year from a pension and 401(k) combined, with Social Security separately exempt. The $31,110 exclusion lowers the taxable retirement income to $13,890.1 At Kentucky's 2026 rate of 3.5 percent, that is about $486 in state tax (it would have been about $556 at the 4 percent rate in effect through 2025). The first $31,110 is shielded either way.

The lesson: Kentucky's combination of a large per-person exclusion and a low flat rate keeps the state tax modest for most retirees.

At a Glance: Every Income Type

Why This Matters for Care

State tax is not an abstraction when you are pricing assisted living or in-home help. It is money that leaves your budget before the care bill arrives. In Kentucky, the exclusion keeps that line short for most retirees.

With the first $31,110 per person of retirement income shielded and a flat 3.5 percent rate for 2026, a large share of what you draw for housing, health, and care stays whole.1 For couples, the combined $62,220 exclusion covers a substantial retirement income before any state tax applies.

That still belongs in an honest funding plan, especially if your withdrawals run well above the exclusion. Figure the tax on the amount over $31,110 and build that after-tax number into your care budget.1 Our guide to building a senior care funding plan walks through how to map income, taxes, and care costs together, and the broader guide to paying for senior care covers Medicaid, VA benefits, and private-pay options once you know what your after-tax income actually is. Our guide to retirement accounts for care covers how to time those withdrawals when care costs enter the picture.

Learn More

Find personalized help mapping your Kentucky retirement income against care costs at brevy.com.

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.