In Bailey v. State of North Carolina, the North Carolina Supreme Court held that the state of North Carolina may not tax certain retirement benefits received by retirees (or by beneficiaries of retirees) of the State of North Carolina and its local governments or by United States government retirees, including military retirees.
The exclusion applies to retirement benefits received from certain defined benefit plans, if the retiree had five or more years of creditable service as of August 12, 1989.
The exclusion also applies to retirement benefits received from the state's §401(k) and §457 plans if the retiree had contributed or contracted to contribute to the plan prior to August 12, 1989.
The exclusion does not apply to retirement benefits paid by other states and their political subdivisions.
The exclusion is available to both residents and nonresidents who receive qualifying retirement benefits.
To exclude qualifying retirement benefits under the Bailey decision in the North Carolina individual tax return in TaxSlayer Pro, from the NC Main Menu select:
- Deductions from Taxable Income
- Retirement Benefits (Bailey Lawsuit) - If the calculated amount is correct, you're done.
- Additional Retirement Benefits - If the calculated amount is not correct, select this line and enter the amount to exclude (the amount included in federal AGI).
Note: This is an article on where to enter the Bailey decision exclusion in the TaxSlayer Pro program. It is not intended as tax advice.
Additional Information:
Bailey Decision Concerning Federal, State and Local Retirement Benefits