Well, Many are not eligible to be exempt from NC taxation.
Depends on when you started working for the Fed govt.
If you had at least 5 years of Federal service BEFORE 12 August of 1989, then those Federal retirement $$ are exempt from NC taxation. Otherwise they are NC-Taxable $$.
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IF, for your Federal employment situation, your $$ are eligible to be NC-exempt, then you need to edit that CSA-, CSF-1099-R in the Federal income section, and on one of the pages after the main form, there is page with several selections on it....and you need to select the Bailey Settlement. That removes the $$ from NC income subject to taxation
I agree but the two inputs on the Bailey decision in Turbo Tax are frozen. And yes, I had continuous federal service under CSRS from 1974 through 2005. The North Carolina Department of Revenue recently restated specifically the exemptions under the Bailey Decision for tax year 2022.
1) You'll need to define exactly where your inputs are "Frozen"
2) I see no problem designating them as Bailey Settlement using the Desktop software.
3) Or are you using the "Online" software.....I haven't tested that
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Another option if things aren't going well, is to delete that CSA-1099-R and re-enter it manually from scratch....sometimes the carry-over forms from last year have issues in their data entry.
You may need to re-enter the CSA-1099-R as SteamTrain suggested. You need to confirm that the NC distribution amount on the 1099-R is not empty. It should be the amount in box 2a, or the taxable amount in Box 1 if Box 2a is empty or undetermined. If the NC distribution amount is blank or zero, there is nothing to subtract from North Carolina income.
Go back to the "Income" tab and "Edit" the 1099R. After confirming the form entries, there will be a follow on question for NC residents that asks if the distribution is part of the Bailey Settlement. You would need to select "Yes."
After completing the Federal Interview return to the NC state interview. Click through the initial pages and you will arrive at the page titled "Here's the income NC handles differently." The Bailey deduction should show at the top of that page with a button allowing you to edit if needed.