North Carolina does not tax certain military retirement payments. According to the North Carolina Department of Revenue:
...a taxpayer may deduct the amount received during the taxable year from the United States government for the following payments:
- Retirement pay for service in the Armed Forces of the United States to a retired member that meets either of the following:
- Served at least 20 years.
- Medically retired under 10 U.S.C. Chapter 61. This deduction does not apply to severance pay received by a member due to separation from the member's armed forces.
- Payments of a Plan defined in 10 U.S.C. § 1447 to a beneficiary of a retired member eligible to deduct retirement pay under sub-subdivision a. of this subdivision.
The deduction is only allowed to the extent the payments are included in the taxpayer's adjusted gross income.
Basically, if you have 20 years of service and are retired, your military retirement payments will be not be subject to North Carolina State tax.
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