North Carolina Military Retirement exemption

[janddwright]

I need to deduct my military retirement when computing my North Carolina taxes as meet the requirement of being exempt. I couldn't find any way to do this on the program.

[SteamTrain · Accepted solution]

As long as you had 5 years of service credited before 12 Aug of 1989...then you would qualify for the "Bailey Settlement" .

The procedure is the same in TurboTax every year, so (perhaps) print this out for next year and file it.

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Go back and edit the 1099-R form in the Federal section.

 After you enter your 1099-R form, and "Continue" thru the pages that follow it...until you find the selections for:

1) "Bailey settlement...."....................<<<<you are selecting this one

2) "Faulkenbury settlement...."

3) "Railroad Ret-SS.........."

4) "None of the above"

You need to select the "Bailey Settlement..."

Your NC Distribution amount is the same a box 2a of the 1099-R form (or the calculated federally-taxable amount for box 2a, if 2a is empty)....... that $$ will be removed in the NC section depending on what selection you made above.

(Picture Below)

.....Far fewer retired Military/Fed/State employees can exempt their Pension $$ if they retired this year.  BUT...IF you were into your NC-State or Federal/Military pension system, 5 years as of 12 Aug 1989, you can choose the "Bailey Settlement..." and all of that particular 1099-R will be exempted from NC taxation...otherwise you will likely choose "None of the above"

So that 5-years employment by the Feds/Military, or NC-State Gov't-related plan, by 12 Aug 1989 is critical

.......if you weren't employed by the Gov't early enough to meet that deadline...then your Pension distribution is not exempt from NC taxation

[Linda Stanley]

So from what I read on your solution as to whether I can claim Bailey in NC, I retired from USN in 1991 and my pension started in 1991.  Therefor I am not eligible for Bailey.  Is this correct?

[SteamTrain]

@Linda Stanley 

Wrong...you are likely eligible...

....what was the date, 5years after you Started in the Navy ?   (not when you started receiving your pension)

So if you started service in the Navy in say 1971, and stayed in  (no break in service), then you would be 5-years vested in 1976....and that is long before 12 Aug of 1989.

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if you did have a break in service along the way, then it's that date at which you had 5 years of credited service.

[ebtaxes]

Is this still correct? in the 2023 version, "United States Armed Forces retirement benefits" is an option in addition to "Bailey settlement retirement benefits." 

When I choose US Armed Forces, it looks like the income is taxable.

[DMarkM1]

The US military retirement benefits that do not qualify for the Bailey Settlement may still show as taxable after your federal "Wages & Income" Form 1099R entries.  You will need to continue in your NC state interview.  You will indicate you are a veteran and in the "Income" section you will find the US Uniformed Services Retirement Benefits" topic.  There you will have the opportunity to enter the amount of the 1099-R distribution for military retirement benefits to exclude from NC taxable income.

Here is the NC reference.