Your income is not taxable, but you may have to take extra steps to exempt it. This was one of the tax law changes in Kentucky that was fiercely debated. One of the changes is that instead of $41,110 of all pension income being automatically tax-exempt, now the amount is $31,110 (per person). The exemption amount for the KY Retirement System have been maintained; however, it is much more likely that you will have to fill out the information in Schedule P in order to receive the deduction. To do this:
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Click Yes on the screen asking about Government Pension Income.
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Answer the question if you retired before January 1, 1998 (If you did, your pension will be exempted once you enter the information in the next screen providing the retirement date and pension amount).
- If you answered no on that screen, answer yes on the next screen if you retired after 1997 and had service credits from before 1998. You will need to answer questions in the following screens that will allow additional amounts of your pension to be exempted from income. These additional amounts are reported on Schedule P and are added to the automatic exemption of $31,110. The information you will need to enter should be available on your 1099-R. Once you add the 100%, the remaining "taxable" pension will no longer be taxable.
Please feel free to add a comment if you have additional questions. But here is a link that discusses this and other KY Income tax Law Changes
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