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Do I qualify for the North Carolina Bailey Settlement adjustment to my military retirement income?

Forum|Forum|7 years ago
June 4, 2019
4 replies
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Best answer by SteamTrain

Expert Reviewed

More info.....it depends:

Be careful....many currently retiring NC-State/Federal/Military people find out they are not eligible for the NC-exemption of those pension $$. A person retiring in 2015 found they would need more than ~30 years of service before they could get that exemption.

As long as you had 5 years of service credited before 12 Aug of 1989...then you would qualify for the "Bailey Settlement" .

The procedure is the same in TurboTax every year, so (perhaps) print this out for next year and file it.

____________________________________________________

IF..you still qualify

Go back and edit the 1099-R form in the Federal section.

After you enter your 1099-R form, and "Continue" thru the pages that follow it...until you find the selections for:

1) "Bailey settlement...."....................<<<<you are selecting this one

2) "Faulkenbury settlement...."

3) "Railroad Ret-SS.........."

4) "None of the above"

You need to select the "Bailey Settlement..."

Your NC Distribution Amount is the same a box 2a of the 1099-R form (or the calculated federally-taxable amount from box 1, if 2a is empty)....... that same $$ will be removed in the NC section depending on what selection you made above.

(Picture Below)

.....Far fewer retired Military/Fed/NCStateMunicipalTeacher employees can exempt their Pension $$ if they retired this year. BUT...IF you were into your NC-State or Federal/Military pension system, 5 years as of 12 Aug 1989, you can choose the "Bailey Settlement..." and all of that particular 1099-R will be exempted from NC taxation...otherwise you will likely choose "None of the above"

So that 5-years employment/service by 12 Aug 1989 is critical

.......if you weren't employed by the NC or Federal Gov't body early enough to meet that deadline...then your Pension distribution is not exempt from NC taxation

____________________________________________

SteamTrainAnswer

Level 15

Expert Reviewed

More info.....it depends:

Be careful....many currently retiring NC-State/Federal/Military people find out they are not eligible for the NC-exemption of those pension $$. A person retiring in 2015 found they would need more than ~30 years of service before they could get that exemption.

As long as you had 5 years of service credited before 12 Aug of 1989...then you would qualify for the "Bailey Settlement" .

The procedure is the same in TurboTax every year, so (perhaps) print this out for next year and file it.

____________________________________________________

IF..you still qualify

Go back and edit the 1099-R form in the Federal section.

After you enter your 1099-R form, and "Continue" thru the pages that follow it...until you find the selections for:

1) "Bailey settlement...."....................<<<<you are selecting this one

2) "Faulkenbury settlement...."

3) "Railroad Ret-SS.........."

4) "None of the above"

You need to select the "Bailey Settlement..."

Your NC Distribution Amount is the same a box 2a of the 1099-R form (or the calculated federally-taxable amount from box 1, if 2a is empty)....... that same $$ will be removed in the NC section depending on what selection you made above.

(Picture Below)

.....Far fewer retired Military/Fed/NCStateMunicipalTeacher employees can exempt their Pension $$ if they retired this year. BUT...IF you were into your NC-State or Federal/Military pension system, 5 years as of 12 Aug 1989, you can choose the "Bailey Settlement..." and all of that particular 1099-R will be exempted from NC taxation...otherwise you will likely choose "None of the above"

So that 5-years employment/service by 12 Aug 1989 is critical

.......if you weren't employed by the NC or Federal Gov't body early enough to meet that deadline...then your Pension distribution is not exempt from NC taxation

____________________________________________

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

T

tclevel357

Level 2

I know my husband's military retirement qualifies as he served from 79-01. What about his local law enforcement retirement? '01-'17.

Critter

Level 15

http://www.dornc.com/practitioner/individual/bulletins/income_bulletins_09-10.pdf#page=31

RobertG

Level 12

Yes, The exclusion applies to retirement benefits received from certain defined benefit plans, such as the Federal Employees' Retirement System, or the United States Civil Service Retirement System, if the retiree had five or more years of creditable service as of August 12, 1989. See Bailey Decision Concerning Federal, State and Local Retirement Benefits for further details.

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M

Mlpricetx

Level 2

What about the Thrift Savings Plan? An employee is vested on the employee's portion as soon as they make a deposit to the TSP. NCDOR directive PD-99-2 when discussing vested seems to address this. Similar to the states employee component of the 401 and 457 plans.

DMarkM1

Level 15

Federal Thrift Savings does qualify under certain conditions.

Yes, an employee is vested on the employee's portion as soon as they make a deposit into TSP, which for the settlement needs to be prior to 8/12/1989.
The Court ruled that an employee who is vested in the employee component of the plan is also vested in the employer component for "matching contributions".
The Court further ruled that an employee is vested in the "employer fixed percentage component" only if the employee had three years of service (two years of service for certain highly ranked employees) as of August 12, 1989.

For other situations refer to the applicable language from NC DOR directive PD-99-2 supplemented 26 Mar 1999 and dated 5 Nov 1999.

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M

Mlpricetx

Level 2

So if an employee began depositing to the Thrift Savings Plan in July 1988, what portion if any of withdrawals from the TSP are exempt? How is this entered in TurboTax since the prompts seem to be all or nothing?