You can indicate that when you enter your 1099-R. In North Carolina, you can deduct Bailey, Emory, Patton and Faulkenbury settlement benefits from your North Carolina income. This applies to federal or North Carolina government pensions if you qualified before August 12, 1989.
If any of those is the source of your retirement benefits, you will be able to check the appropriate source after you enter your 1099-R in the follow up questions. That will transfer your benefits as nontaxable to the NC return.
Where do I enter a 1099-R?
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