If you are asking how much you can claim as an exclusion from NC tax under the Bailey settlement for 2023:
When you enter your 2023 1099-R in the Federal return in the Income section of TurboTax
- Under Wages & Income, find IRA, 401(k), Pension Plan Withdrawals (1099-R).
- Enter your Form 1099-R
- Continue until you get to Where is your distribution from?
- Select Bailey settlement retirement benefits for the 1099-R that qualifies. Don't select this for any retirement benefits that don't qualify.
Answer any related questions that appear in the North Carolina interview regarding the exclusion from state income for Bailey settlement benefits.
Income from a pension, 401(k), IRA or any other type of retirement account is all taxed at the North Carolina state income tax rate of 4.75%. Unlike many other states, North Carolina does not allow deductions on any type of retirement income. The income tax on pension income is paid through the state return.
The exception is for certain government retirement income. As a result of the North Carolina Supreme Court's decision in Bailey v. State of North Carolina, North Carolina may not tax certain retirement benefits received by retirees (or by beneficiaries of retirees) of the state of North Carolina and its local governments or by the United States government retirees (including military).
The exclusion applies to retirement benefits received from certain defined benefit plans, such as the North Carolina Teachers' and State Employees' Retirement System, the North Carolina Local Governmental Employees' Retirement System, the North Carolina Consolidated Judicial Retirement System, 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.
The exclusion also applies to retirement benefits received from the state's §401(k) and §457 plans if the retiree had contributed or contracted to contribute to the plan prior to August 12, 1989. The exclusion does not apply to retirement benefits paid to former teachers and state employees of other states and their political subdivisions.
See this North Carolina DOR article for more information.
If you are asking how much you can claim as an itemized deduction on your Federal return for taxes paid to NC in 2023:
Enter your state taxes paid in 2023 in the Federal section of TurboTax under Deductions and Credits, then:
- Select Estimated and Other Taxes Paid
- Select Income Taxes Paid
- Select the appropriate choice for the additional state taxes you paid in 2023. You can select to which year the tax you paid applied.
Note that state tax deductions on the Federal return are limited to $10,000 under current law. You also would need to have enough itemized deductions to exceed your standard deduction.
Contact the North Carolina Department of Revenue if you are not sure how they calculated their audit adjustments or how much of the amount you paid constituted tax versus interest and/or penalty.
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