Schedule P: Kentucky Pension Income Exclusion (Revision 2025-10)

Kentucky · Kentucky DOR · Used for tax years 2025

Kentucky Schedule P calculates the pension income exclusion for your Kentucky tax return. It reports exempt retirement income, other retirement income, and the total amount to exclude, and is enclosed with Form 740, 740-NP, or 741.

Who files this form

For tax year 2025, use Schedule P to calculate the Kentucky pension income exclusion when taxable pension or retirement income is greater than $31,110 and you have qualifying federal, Kentucky state or Kentucky local government retirement income, or supplemental (Tier 2) U.S. Railroad Retirement Board benefits.

The form's filing guide says:

You do not need Schedule P if taxable pension or retirement income is not greater than $31,110.
If you are not retired from one of those government employers and did not receive supplemental Tier 2 railroad benefits, you do not need Schedule P. Your retirement income exclusion is limited to $31,110.

For government pensions, Part I covers income attributable to service credit earned before January 1, 1998. Your retirement date determines whether you use line 1(a) or line 1(b).

What you'll need

Have these items available to complete Schedule P:

Your federal Form 1040 or 1040-SR, including taxable retirement income on lines 4(b) and 5(b), and any disability retirement income or deferred compensation on line 1.
Your name as shown on the tax return and Social Security number.
Pension payer names, retirement dates and taxable pension amounts.
For qualifying government pensions after December 31, 1997, your exempt percentage or exempt amount calculated by your retirement system, or service-credit information to complete the worksheet.
Any pension or IRA basis differences reported on Schedule M, line 5, or Form 740-NP, page 4, line 16.
Form 4972-K, if you have a lump-sum distribution reported on that form.

If you need the worksheet, it asks for total months of service credit, including purchased service, and months of service credit earned after December 31, 1997.

How to file

Enclose Schedule P with Form 740, 740-NP or 741.

Complete Part I. Use line 1(a) if you retired before January 1, 1998. Use line 1(b) if you retired after December 31, 1997. For line 1(b), multiply the taxable pension by the exempt percentage to find the exempt amount.
Complete Part II. Enter taxable retirement income not included on line 1(c), including applicable disability retirement income, deferred compensation and pension or IRA basis differences.
Complete Part III. On line 3, enter the smaller of line 2 or $31,110. Add lines 1(c) and 3 on line 4.
Transfer the exclusion. Enter line 4 on Schedule M, line 9; Form 740-NP, page 4, line 10(b); or Form 741, page 1, line 11. Joint filers combine their line 4 amounts.

Stop after line 4 unless you have a lump-sum distribution reported on Form 4972-K. If you file Form 4972-K and Schedule P, line 3, is less than $31,110, enter that 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 taxable remainder out of Part II. Subtract the exempt amount from the taxable pension and include the difference with other retirement income in Part II.
Combining spouses' calculations too early. Each taxpayer must calculate and claim their own exclusion, regardless of filing status.
Using one worksheet for multiple government pensions. Use a separate worksheet for each governmental pension.
Counting air-time as service earned after December 31, 1997. Do not include purchased credit unrelated to prior work history in the worksheet's line 2.
Discarding the worksheet. Keep it with your tax records. The exempt percentage is used this year and in future years.

Questions people ask

What types of retirement income qualify for the exclusion?

All 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, death benefits and similar accounts or plans.

Is $31,110 the total limit on every pension exclusion?

No. Line 3 limits the exclusion for Part II income to the smaller of that income or $31,110. Line 4 adds that amount to the exempt retirement income on line 1(c).

Do I need to calculate my exempt percentage again every year?

Complete the worksheet only if you retired in 2025 or have not calculated your exempt percentage in prior years. Keep the worksheet and use the percentage in future years. If your retirement system has calculated your exempt amount or percentage, enter it on line 1(b) as directed.