North Carolina does tax retirement income, but not all of it.
North Carolina does tax retirement income, but not all of it.
The state defines retirement benefits as “amounts paid by an employer to a former employee or beneficiary after the employment ends as required under a written retirement plan. Retirement benefits also include amounts you received from an individual retirement account or from an individual retirement annuity,” according to the N.C. Department of Revenue website.
If your federal taxable income includes retirement benefits from a private retirement plan, you may be able to deduct up to $2,000. If you received retirement benefits from more than one private retirement plan, you will not get a separate $2,000 deduction for each distribution. You may only deduct the total amount included in federal taxable income or $2,000, whichever is less. If you received both government and private retirement benefits, your maximum deduction is the total amount included in federal taxable income or $4,000, whichever is less.
Different rules and deductions apply to former employees of the North Carolina state government, any local N.C. government or as a former employee of the federal government.
Date posted: May 3, 2011
User-contributed question by:
Rita Price
I believe the original question was probably refering to the Bailey Decision. This case involved Federal, NC state and NC local government retirees. If they were vested in their retirement plan by August 12, 1989, they are able to deduct the entire amount of their Federal or North Carolina state or local government retirement from their North Carolina taxable income.