As a federal retiree should my wifes' pension be exempt from NC state taxes due to the Bailey decision? She was employeed before 1989

[NCperson]

the pension is qualified for Bailey in NC as long as her pension was VESTED by August 12, 1989.  That means her work start date had to be prior to August 12, 1984. 

the issue is NOT employed prior to August, 12, 1989, it is VESTED prior to August, 12, 1989

https://www.ncdor.gov/taxes-forms/individual-income-tax/bailey-decision-concerning-federal-state-and...

[thomasreindl]

Yes she started March of 1984. Does that mean she is vested as far as the pension is concerned.

Would other money contributed to TSP account by her placed into an IRA also be subject to the Bailey decision ( there was no match by the Federal Government ) but the plan was converted by the Federal Government from CSRS to CSRS offset in June of 2010 because of a claim that she was placed in the wrong plan when hired. The administrators created the CSRS offset for people who would not voluntarily switch to the FERS plan ( the "correct" one) which would have basically started my wife at day one.

[SteamTrain]

@thomasreindl 

The Pension should be OK.

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The roll into the traditional IRA would not, no matter whether the TSP was Bailey eligible or not. 

"Conversely, qualifying tax-exempt Bailey benefits rolled over into another retirement plan lose their character and would not be exempt upon distributions from the other plan unless that plan is a qualifying Bailey retirement account in which the employee was vested as of August 12, 1989.  "

Ref:  Bailey Decision Concerning Federal, State and Local Retirement Benefits | NCDOR

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As an aside:  TSP eligibility itself was defined with slightly different rules in Directives PD-99-1 and PD-99-2....and requiring the first contribution before 12 Aug of 1989 in any case.  (with a bunch of 2yr/3yr vesting handwaving about whether any employer...(federal) match was allowed to be Bailey exempt too.  Defined in PD-99-2... But this wouldn't have been a question in your case, since you had no employer match....and had exited that TSP long ago).

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Directive PD-99-1 | NCDOR

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Directive PD-99-2 | NCDOR

[NCperson]

@thomasreindl federal pension vest 5 years after the start date, so if your wife began her career in the federal governement in March 1984, the pension vested in March, 1989 and therefore is Bailey eligible.  There is no income tax in NC on this pension.

do you already live in NC? what happened on your last tax return?

[thomasreindl]

Yes , we live in NC and the pension amount was not removed from the state taxes on line 20 schedual S.

We have not withdrawn money from the TSP account so that does not currrently apply.

[NCperson]

@thomasreindl 

You should be looking at Line 9 of North Carolina Form D-400.  The Bailey income is removed from the Federal Adjusted Gross income; it is not a reduction in "state taxes", so maybe it was removed from the NC tax return, but you are looking in the wrong place????

Line 9 deducts Bailey as well as any of your social security that is taxable (since it is not taxed by NC), so,  take whatever is on Line 9, then subtract whatever is on the FEDERAL TAX RETURN on Line 6B (which is the taxable portion of Social Security) and whatever is left over (hopefully!) is your federal pension that is Bailey Eligible! 

Please post what you discover! 

[SteamTrain]

@NCperson   @thomasreindl 

Well...I agree that it should first show up on line 20 of the 2022 NC Schedule S.....that's all before it ends up as part of the deductions on line 9 of the D-400.

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BUT...for TTx Software:

IF it didn't show up on line 20 of the NC Schedule S....then maybe you failed to indicate it was a Bailey-eligible when you entered that CSA(?)-1099-R in the Federal section (a follow-up question)

[ID72]

The text on the NCDOR webite is worded in a confusing way. Does the Bailey decision apply to annuitants of the Federal Employee Retirement System regardless of vesting data, or does it only apply to those who  were visted by August 12, 1989, regardless of whether they are FERS or CSRS annuitants?

[SteamTrain]

@ID72 

For Federal pensions, the Bailey Settlement only applies to both those Federal Pension systems in which the person was vested in it for at least 5 years as-of 12 Aug 1989.

Their statement includes both.

" 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"

[NCperson]

@ID72 it only applies if you were vested as of Aug, 1989, which means you began working for the federal government prior to Aug, 1984.  If you began working for the federal government after that date your pension is taxable

(Military retirement pensions are tax free regardless of when you entered the military.)