You are partially correct. Retirees with at least 5 years creditable service as of August 12, 1989 are exempt from state income tax on their military retirement pay, due to the Bailey Decision. All other retirees qualified for the $4,000 (or $8,000) exclusion until 2013, when the provision was eliminated.
If you qualify under Bailey, Turbo Tax will ask you about the Bailey Law for North Carolina in the Federal Taxes section, when entering your retirement income.
After entering the data from your
1099-R for your retired military pay, there will be several follow-up
questions. Look for a page titled "Where is this distribution
from?" The software will automatically have
"None of the above" checked. Check the first item, "Bailey
settlement retirement benefits", then 'Continue'. At this point,
you should see your NC Tax Due drop to reflect the non-taxability of the
...I'd modify that somewhat.
The last year the 4000,8000 exclusion was applicable was for the 2013 tax years and prior. For 2014 and beyond..that was eliminated. So only the Bailey, RR, and SS exclusions remain (There's also a Faulkenbury settlement that "might" remain, but (in my opinion) there shouldn't be anyone eligible to claim that anymore:
<a rel="nofollow" target="_blank" href="http://www.dornc.com/incometaxupdates/presentations/retirees.pdf">http://www.dornc.com/incometaxupda...>
The 4000,8000 exclusion was only for Public Employee and Federal employee retirement benefits, that were not Bailey eligible, for tax years of 2013 and before. There was also a $2000 Retirement income exclusion for the rest of us with pensions from private companies (IBM, AT&T, Ford, Deere...etc) but those exclusions were eliminated for 2014 going forward.
So anyone who missed the exclusions for 2012 and 2013 tax years could amend NC...
@bg.misanthrope I agree that this 2-year old post will not always be applicable
HB 103 was passed by the NC house in 2017...then it went to committee.
From the following NC status page, it has not been passed by the senate:
<old link no longer valid>
OF course, they could always tack that into some other bill I'm not aware of....but another BUT:
The NCDOR is still using the Bailey Settlement, 12 Aug 1989 as the 5-year vesting date in their own literature,
.... and their actual 2017 D-401 PDF instructions for 2017 show the same thing...so I doubt HB-103 has gone thru all the required steps in any other form (yet):
In any case, the NCDOR filing instruction will be updated IF..if it ever passes.
For simplicity's sake I would hope the y change the effective dates too...or a lot of folks end up having to amend their old tax returns. Though most wouldn't mind if they get a refund as a result....but amending can be a pain in the behind. ...and the software companies will not rewrite their prior year software to allow for amending for that new tax law. IF the bill passed and was signed today and if retroactive to 2017, at this point in time, a TurboTax 2017 NC software modification to allow for it would be 60% No, 40% yes....and gets worse as time passes into the current season.
I don' agree. NC may not have challenged you yet, but that military retirement income should not be claimed as being "Bailey" eligible. Just because you have little or no NC withholding set up on your 1099-R is immaterial.
Some day, NC may challenge you on it, but yeah, you might get away with it in the meantime. Almost anyone can improperly "claim" Bailey on their Military or Federal 1099-R, and get away with it for awhile, But that doesn't make it right.