Does Kentucky Tax Social Security? Exclusion and How to Claim It

No, Kentucky does not tax Social Security benefits. Under KRS 141.019, the state fully excludes Social Security and Railroad Retirement Board income from your state return, no matter how much you receive or how you file.¹ You still have to subtract the benefits yourself on the right line, because your Kentucky return starts from a federal number that may already include a taxable portion.

What the Exclusion Covers

The subtraction in KRS 141.019(1)(e) applies to any Social Security or Railroad Retirement Board benefits that were taxed federally. That includes regular Social Security retirement payments, Social Security Disability Insurance, and equivalent Railroad Retirement benefits.¹

There is no income cap, no phase-out, and no worksheet. A retiree collecting $40,000 in Social Security gets the same full exclusion as one collecting $15,000. Whatever amount the federal government taxed, Kentucky backs out in full.

Why There’s a Federal Number to Subtract

Kentucky’s return begins with your federal adjusted gross income, and the IRS can tax up to 85% of your benefits based on your “combined income” — roughly your AGI without Social Security, plus any tax-exempt interest, plus half your benefits.²

Two federal thresholds matter:

If combined income exceeds $25,000 (single) or $32,000 (married filing jointly), up to half your benefits may be taxed.
If combined income exceeds $34,000 (single) or $44,000 (joint), up to 85% may be taxed.

Whatever portion the IRS taxes lands on line 6(b) of your federal Form 1040.³ That is the number you remove on your Kentucky return.

How to Claim the Exclusion on Your Kentucky Return

You take the subtraction on Kentucky Schedule M, which modifies your federal AGI for state purposes. Schedule M attaches to Form 740, the standard individual income tax return.⁴

On Line 10 of Schedule M, enter the taxable Social Security and Railroad Retirement Board benefits shown on federal Form 1040 or 1040-SR, line 6(b).⁵ That entry removes the benefits before Kentucky’s flat tax rate applies, which drops to 3.5% for 2026.⁶

Miss the step and Kentucky will tax the federal taxable portion of your benefits by default. Most tax software handles the subtraction automatically, but check that the figure on Line 10 matches line 6(b) of your federal return before you file.

Other Retirement Income Is Only Partially Excluded

The complete pass applies to Social Security alone. Distributions from pensions, annuities, 401(k) plans, IRAs, and similar accounts are excluded only up to $31,110 per person.¹ Married couples each calculate the exclusion separately, so a couple can shield up to $62,220 in combined retirement distributions. Anything above the cap is taxed at the standard rate.⁵

This exclusion goes on Line 9 of Schedule M, not Line 10. If your distributions total $31,110 or less, enter the amount directly. If they exceed the cap and include a federal, state, or local government pension, you’ll need Schedule P to figure the exact exclusion.⁵

For a retiree whose only income is Social Security, the Line 10 subtraction can wipe out Kentucky income tax liability entirely.

1
Kentucky Legislative Research Commission. Kentucky Revised Statutes KRS 141.019 – Calculation of Adjusted Gross Income and Net Income
2
Internal Revenue Service. Publication 915, Social Security and Equivalent Railroad Retirement Benefits
3
Internal Revenue Service. IRS Reminds Taxpayers Their Social Security Benefits May Be Taxable
4
Commonwealth of Kentucky Department of Revenue. Schedule M 2025 – Federal Adjusted Gross Income Modifications
5
Commonwealth of Kentucky Department of Revenue. 2025 Kentucky Individual Income Tax Forms – Instructions for Schedule M
6
Commonwealth of Kentucky Department of Revenue. 2026 Kentucky Withholding Tax Formula