Schedule P: Kentucky Pension Income Exclusion (Revision 2024-10)
Kentucky · Kentucky DOR · Used for tax years 2024
Kentucky Schedule P calculates the pension income exclusion for 2024 and is enclosed with Form 740, 740-NP, or 741. It reports exempt retirement income, other taxable retirement income, and the total amount to exclude.
Who files this form
For tax year 2024, the form’s filing guide directs you to Schedule P if you received more than $31,110 in taxable pension or retirement income and either:
- You retired from the federal government, the Commonwealth of Kentucky, or a Kentucky local government.
- You received supplemental (Tier 2) U.S. Railroad Retirement Board benefits.
If your taxable pension or retirement income was $31,110 or less, the guide says you do not need to file Schedule P. If neither category above applies, the guide says you do not need Schedule P and are limited to $31,110 in excludable retirement income.
Form 740-NP filers report only pension income received while a Kentucky resident.
What you'll need
Have the following information available:
- Your name as shown on your tax return and your Social Security number.
- Your federal Form 1040 or 1040-SR, including taxable retirement amounts on lines 4(b) and 5(b), and any disability retirement or deferred compensation reported on line 1.
- Pension payer names, retirement dates, and taxable pension amounts.
- For each applicable government pension, your previously calculated exempt percentage or an exempt amount or percentage supplied by your retirement system.
- If you need to calculate the percentage, service-credit records showing total service, purchased service, service earned after December 31, 1997, and sick leave credited at retirement.
- Any pension and IRA basis adjustments reported on Schedule M, line 5, or Form 740-NP, page 4, line 16.
Keep the exempt-percentage worksheet with your tax records.
How to file
Enclose Schedule P with Form 740, 740-NP, or 741. The supplied text does not give a mailing address or e-filing directions.
- Complete Part I. Use line 1(a) if you retired before January 1, 1998. If you retired after December 31, 1997, use line 1(b) to calculate the exempt portion attributable to service earned before January 1, 1998.
- Complete Part II. Enter taxable retirement income not included in line 1(c), including the taxable pension amount remaining after subtracting the Part I exemption.
- Complete Part III. On line 3, enter the smaller of line 2 or $31,110. Add lines 1(c) and 3 to get your total exclusion on line 4.
- Transfer the exclusion to Schedule M, line 9; Form 740-NP, page 4, line 10(b); or Form 741, page 1, line 11. Joint filers combine their separately calculated line 4 amounts.
If you have a lump-sum distribution reported on Form 4972-K and Schedule P line 3 is less than $31,110, enter the line 3 amount on Form 4972-K, Part II, line 2.
Common mistakes
- Including deferred compensation in Part I. The form specifically says not to include it there.
- Leaving the remaining pension out of Part II. Subtract the exempt amount from the taxable pension and include the difference with other retirement income in Part II.
- Using one exclusion calculation for both spouses. Each spouse must calculate and claim their own exclusion, regardless of filing status.
- Using one worksheet for multiple government pensions. Use a separate worksheet for each pension.
- Counting purchased air-time as service earned after December 31, 1997. Do not include it in the worksheet’s line 2 amount, regardless of when it was purchased.
- Discarding the worksheet. Keep it with your tax records because its percentage is used in future years.
Questions people ask
What kinds of retirement income qualify for the exclusion?
The form says pension and retirement income paid under a written retirement plan is eligible. Examples include pensions, annuities, IRA accounts, 401(k) and similar deferred compensation plans, and death benefits.
Can my total exclusion be more than $31,110?
Yes. For 2024, line 3 is limited to the smaller of your Part II income or $31,110. Your total exclusion on line 4 adds that amount to the exempt retirement income on line 1(c).
Do I need to recalculate my exempt percentage every year?
Complete the worksheet only if you retired in 2024 or have not calculated your exempt percentage in prior years. Keep the worksheet and use the percentage in future years.
What if my retirement system already calculated my exemption?
If it calculated your exempt amount, enter that amount on page 1, line 1(b), in column A or B. If it calculated your exempt percentage, enter that percentage in the exempt percentage column on line 1(b).