Page 1 of 2 LRC 2022-BR197-HB96
COMMONWEALTH OF KENTUCKY FISCAL NOTE STATEMENT
LEGISLATIVE RESEARCH COMMISSION
2022 R EGULAR SESSION
MEASURE
2022 BR NUMBER 197 HOUSE BILL NUMBER 96
TITLE AN ACT relating to an exemption of income taxation for military pensions.
SPONSOR Representative Walker Thomas
FISCAL SUMMARY
STATE FISCAL IMPACT: YES NO UNCERTAIN
OTHER FISCAL STATEMENT (S) THAT MAY APPLY: ACTUARIAL ANALYSIS
LOCAL MANDATE CORRECTIONS IMPACT HEALTH BENEFIT MANDATE
APPROPRIATION UNIT(S) IMPACTED:
FUND(S) IMPACTED: GENERAL ROAD FEDERAL RESTRICTED
FISCAL ESTIMATES 2021-2022 2022-2023 2023-2024 ANNUAL IMPACT AT FULL
IMPLEMENTATION
REVENUES ($9,000,000) ($9,390,000) (Indeterminable)
EXPENDITURES
NET EFFECT ($9,000,000) ($9,390,000) (Indeterminable)
( ) indicates a decrease/negative
PURPOSE OF MEASURE: HB 96 allows an exclusion from income for all military retirement
benefits received by the retired member or a surviving spouse of the retired member. Some
military retirees receive tax benefits under the retirement income exclusion (KRS 141.019),
which excludes up to $31,110 of gross retirement income from the Kentucky individual income
tax. Removing the $31,110 income exclusion cap for military retirees would exclude 100 percent
of military retirement income from the Kentucky individual income tax.
Some survivors receive income through the Survivor Benefit Plan (SBP). The SBP provides
annuity payments to survivors upon the death of a military retiree who received military
retirement income and opted to cover eligible dependents under the plan. Currently, 100 percent
of SBP payments are subject to Kentucky’s individual income tax.
FISCAL EXPLANATION : Staff estimate the following fiscal impacts based on current data,
tax benefits, and the individual income tax rate. Any changes in assumptions or future changes in
tax policy or rates could change the estimates.
The estimate for the military retirement income exclusion uses data from the U.S. Department of
Defense’s Statistical Report on the Military Retirement System for FY 2020. The report provides
the number of military retirees and the average amount of retirement income of military retirees Page 2 of 2 LRC 2022-BR197-HB96
in Kentucky. It also provides the number of military retirees who make above the $31,110
threshold only for the national level. Staff used the national data on the number of military
retirees who make above the $31,110 threshold to estimate the percentage of military retirees in
Kentucky making above the threshold, taking into account factors that affect the military retiree
population and retirement income in Kentucky. The estimate assumes that the population in the
survey is representative of the actual population of military retirees in Kentucky. To the extent
that the national distribution of military retirees by rank is different than the Kentucky military
retiree population, the estimate may over- or under-estimate the true impact.
According to the U.S. Department of Defense, there were 26,428 military retirees in Kentucky
who were paid by the department as of September 30, 2020. On average, each Kentucky military
retiree received an estimated $26,168 in retirement income annually. While the average annual
retirement income is below the $31,110 threshold, an estimated total of 6,434 officers and
enlisted military retirees in Kentucky receive an amount above the threshold. Table 1 shows the
estimated fiscal impact of exempting all military retirement income above the current $31,100
threshold for the estimated 6,434 officers and enlisted military retirees whose retirement income
currently exceeds this threshold.
Staff received data on the number of survivors receiving SBP payments and the total monthly
amount paid from the U.S. Department of Defense’s Office of the Actuary. As of September
2020, there were 4,202 total survivors who received SBP benefits.
1
Beneficiaries under the SBP
program include spouses and children, former spouses and children, children, and insurable
interests.
2
Table 1 shows the estimated fiscal impact of these exemptions for surviving spouses and former
spouses. The fiscal impact of 2022 RS HB96 would be a reduction in General Fund revenue of
approximately $9.0 million in FY 2023 and $9.39 million in FY 2024.
Table 1
Estimated Fiscal Impact of a 100 Percent Exemption of
Military Retirement and SBP Income, in millions
FY 2023 FY 2024
Military Retirement Income Exemption (6.54) (6.81)
SBP Income Exemption (2.46) (2.58)
Total Fiscal Impact (9.0) (9.39)
Data Source: Department of Defense Statistical Report on the Military Retirement System for
FY 2020 and author’s calculations
DATA SOURCE(S): LRC Staff
PREPARER: Sarah Watts NOTE NUMBER: 122 REVIEW: JAB DATE: 3/11/2022
1
The Survivor Benefit Plan was formerly known as the Retired Serviceman's Family Protection Plan (RSFPP).
2
According to the Defense Finance and Accounting Service, insurable interests are individuals who can be covered
in cases where the military retiree has no other eligible dependents. Examples include siblings and children other
than eligible children.