I want to ensure that my military retirement is not being taxed by state of North Carolina. My state tax liability seems to be a lot higher this year.

[SteamTrain · Accepted solution]

That selection is the Bailey Settlement...but be careful....... recent Military retirees find they are not eligible.

In order for you to be eligible, you had to have 5 years of military service before 12 Aug of 1989.

If you are eligible, follow the answer here:

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) For North Carolina---Bailey eligible pensions......you need to go back to that 1099-R entry area in the Federal section.

2)  Click "Continue" at the bottom of the page, answer the next page, then answer subsequent questions until you get to one that asks "Where is This Distribution From" ...HERE is where you indicate that the retirement was  "Bailey Settlement"  eligible (you must have been 5-yr vested as of 12 Aug 1989 in order to qualify for Bailey...and that's the only one the gives you a full NC exemption from taxation)

http://www.dornc.com/taxes/individual/benefits.html

3) The NC distribution amount on  this follow-up page should be the same as in box 2a (unless you were a part-year resident).  The non-taxable portion is applied later.  IF 2a has to be calculated...it is the same as whatever the Federally-taxable amount is..

4)  Continue out answering questions until you get to the main 1099-R table....and move out to the main screen.  Then go check your NC tax return and see if the pension amounts are removed.  The $$ should show up on line 10 for the 2016 NC D-400 Sched S.  that gets added into the other items that are subtracted from Federal income to produce NC-taxable income
 

[WilsonG]

Hello - if North Carolina is your state of residence look on your 1099-R for Box 12: State Tax Withheld. Since North Carolina does not tax income this should be blank or zero.