Active-duty and reserve pay
All military pay received for service is exempt.
An E-5 with over 6 years of service earns $49,320 a year in basic pay. In Kentucky, that pay is normally excluded from state income tax. Housing and food allowances are never taxed by any state.
Military retired pay
Retired pay for service before 1998 is exempt in full. Pay for later service is covered by Kentucky's pension exclusion, up to a yearly cap.
Your state of legal residence decides
Military pay is taxed by your state of legal residence, usually the state you lived in when you joined or one you later adopted by changing your records, not by the state where you are stationed. This comes from the Servicemembers Civil Relief Act. Spouses can choose to use the member's state of legal residence for their own income too.
See your total pay with state tax
Questions
Does Kentucky tax military pay?
Kentucky does not tax active-duty military pay. All military pay received for service is exempt.
Does Kentucky tax military retirement pay?
Retired pay for service before 1998 is exempt in full. Pay for later service is covered by Kentucky's pension exclusion, up to a yearly cap.
Is BAH taxed in Kentucky?
No. BAH and BAS are not taxable income for federal or state tax in any state.
Which state taxes me if I am stationed in Kentucky?
Under the Servicemembers Civil Relief Act, your military pay is taxed only by your state of legal residence, not the state where you are stationed. If Kentucky is not your legal residence, Kentucky does not tax your military pay.