Retirement income reported on Kentucky Schedule P may qualify for a full or partial exclusion depending on the source of the income and the taxpayer's retirement date.
Retirement income attributable to service credit earned before January 1, 1998, may qualify for a full exclusion. A partial exclusion may be available for qualifying retirement dates after December 31, 1997.
Program Entry
Kentucky > Subtractions from Income > Retirement Income - Schedule P
Who Qualifies?
Qualifying retirement income includes:
- Federal government pension income attributable to service credit earned before January 1, 1998.
- Kentucky state government pension income attributable to service credit earned before January 1, 1998.
- Kentucky local government pension income attributable to service credit earned before January 1, 1998.
- Supplemental (Tier 2) U.S. Railroad Retirement Board benefits included in federal income.
- Federal or Kentucky disability retirement income attributable to service credit earned before January 1, 1998.
What Information Is Required?
Retirement Date Before January 1, 1998
If the retirement date is before January 1, 1998, complete the applicable section for each retirement income source.
The program provides separate entries to report up to three retirement income sources with retirement dates before January 1, 1998.
Retirement Date After December 31, 1997
For taxpayers who retired after December 31, 1997, only the portion of retirement benefits attributable to service credit earned before January 1, 1998, may qualify for the Kentucky retirement income exclusion.
To determine the exempt percentage:
- Calculate the total years (or months) of service credit earned before January 1, 1998.
- Calculate the total years (or months) of service credit used to determine the retirement benefit.
- Divide the pre-1998 service credit by the total service credit.
Formula
Pre-1998 Service Credit ÷ Total Service Credit = Exempt Percentage
Example
A taxpayer retired in 2010 with:
- 15 years of service credit earned before January 1, 1998
- 25 total years of service credit
Calculation:
15 ÷ 25 = 0.60
The taxpayer may exclude 60% of the retirement income reported from that pension.
Taxpayers should obtain documentation from their retirement system or pension administrator showing:
- Service credit earned before January 1, 1998
- Total service credit used to calculate the retirement benefit
Other Retirement Income
Use the Other Retirement Income section to enter other retirement income received from federal sources while a resident of Kentucky.
Enter the applicable amount for:
- Taxpayer
- Spouse
The amounts entered in this section flow to Schedule P, Part II - Other Retirement Income and are used in calculating the Kentucky retirement income exclusion, if applicable.
Important Notes
- The retirement income exclusion available on Schedule P is based on Kentucky law and the retirement date associated with the retirement benefit.
- Taxpayers retiring before January 1, 1998, may qualify for a full exclusion of eligible retirement income.
- Taxpayers retiring after December 31, 1997, may qualify for only a partial exclusion based on service credit earned before January 1, 1998.
- Documentation from the retirement system or pension administrator should be retained to support the exclusion claimed.
- Taxpayers should keep records showing retirement dates, service credit, and retirement income amounts reported on Schedule P.