Good news for military taxpayers: Kentucky generally does not tax active-duty military pay. Active-duty pay received by members of the U.S. Armed Forces, Reserve components, and the National Guard is exempt from Kentucky income tax.
Kentucky's instructions also confirm that active-duty military pay is exempt from Kentucky income tax, even though it may be included on your federal return.
How to Report Active-Duty Military Pay on a Kentucky Resident Return
If you're a Kentucky resident, you'll need to subtract your active-duty military pay from Kentucky income.
Follow these steps in the program:
- Go to State
- Select the 3 dots to Edit your Kentucky Resident Return
- Select Subtractions From Income
- Enter the amount of Active Duty Military Pay
- Select Continue to save your entry
Kentucky allows active-duty military pay to be excluded through the state's subtraction adjustments.
How to Report Active-Duty Military Pay on a Kentucky Nonresident Return
If you're filing a Kentucky nonresident return, active-duty military income generally isn't taxable to Kentucky.
To remove nonresident military income from Kentucky taxation:
- Go to State
- Select the 3 dots to Edit your Kentucky Nonresident Return
- Select Adjustments to Income
- Choose Nonresident Military Income
- Enter the amount of nonresident military income included in your Federal AGI
- Enter the amount of nonresident military income included in Kentucky AGI
- Select Continue to save your entry
Do I Need to File a Kentucky Return If Military Pay Is My Only Income?
In many cases, no. Kentucky's instructions state that if a military member's only income is exempt military pay, they generally would not be required to file a Kentucky income tax return. However, you may still want to file if Kentucky tax was withheld in error and you're claiming a refund.
What If My Spouse and I Have Different Residency Statuses?
If one spouse is a Kentucky resident and the other is a nonresident, Kentucky offers several filing options:
- Married Filing Jointly
- Married Filing Separately on a Combined Return
- Married Filing Separately on Separate Returns
The filing status that produces the lowest tax isn't always the same for every couple, so it's a good idea to compare the available options before filing.