(1) Notwithstanding the provisions of KRS 141.010(1), for tax years commencing on or after January 1, 1998, the amount of all previously untaxed distributions from a retirement plan paid pursuant to KRS Chapters 6, 16, 21, 61, 67A, 78, 90, 95, 96, 161, and 164, and the amount of all previously untaxed distributions paid from a retirement plan by the federal government, which are excluded from gross income pursuant to KRS 141.021, shall be included in gross income as follows:
(a) Multiply the total annual government retirement payments by a fraction whose numerator is the number of full or partial years of service performed for the governmental unit making the retirement payments after January 1, 1998, and whose denominator is the total number of full or partial years of service performed for the governmental unit making retirement payments, including purchased service credit. Purchased service credits shall be included in the numerator of the fraction only if the services for which credits are being purchased were provided after January 1, 1998.
(b) The resulting number shall be the amount included in gross income.
(2) Any taxpayer receiving government retirement payments from more than one (1) governmental unit shall separately determine the payment amount attributable to each unit to be included in gross income, using the formula set forth in subsection (1) of this section.