Is military retirement pay taxable in North Carolina?

Forum|Forum|7 years ago
May 31, 2019
12 replies
43 views

Is it true? Retirees 5 years of service as of Aug.12, 1989 are fully exempt. For everyone else, military retired pay is taxed, but up to $4000.00 ($8000.00 for married filing jointly) maybe excluded.

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BarbL

Level 7

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 1099-R.

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SteamTrain

Level 15

@TurboTaxBarb
...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/incometaxupdates/presentations/retirees.pdf</a>

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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...

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*