NC & federal retirement income taxability

[ElizabethLNC]

I have a new client that I'm trying to determine the taxability of her non-military federal retirement income on a CSA 1099R.

She has an NC state retirement that is Bailey.  She's asserting that she's never paid taxes because federal retiree income is non-taxable in NC.  She's bristling and becoming upset because I'm asking questions to understand her situation that "no one else has ever asked her."

I know I can exclude under Bailey, if applicable.  I have left a message so I can request service dates. Is there another provision that excludes it for NC if Bailey doesn't apply? I want to verify it for myself as it may change other clients due to my lack of knowledge.

[qbteachmt · Accepted solution]

Here are tax year 2024 Baily regulations:

https://www.ncdor.gov/taxes-forms/individual-income-tax/filing-topics/bailey-decision-concerning-fed...

I found this comment: "The exclusion does not apply to local government §457 plans or to §403(b) annuity plans. Benefits from other State, local, and federal retirement plans may or may not be excluded depending on rulings in the Bailey case. The exclusion does not apply to retirement benefits paid to former teachers and state employees of other states and their political subdivisions."

[Just-Lisa-Now-]

I think if you hit the yellow ? on the toolbar when your cursor is in that exclusion drop down box, it explains what qualifies.  Thats how I always decide if theres an exclusion for states that Im not familiar with.

[sjrcpa]

Last time I looked, I thought the NC instructions explained it pretty well.

[ElizabethLNC]

Thank you everyone.

I've always applied the Bailey rules to the federal retirement if it was one of the plans listed in the instructions.

The client is asserting it's not taxable for NC because it's a federal retirement plan not because of Bailey.  Given her age, she could have worked her first 30 years with either the federal or state and her second 30 with the other.  The second would be close for Bailey but doable if things lined up perfectly.

I'm still waiting on her return call from yesterday concerning employment dates.

[qbteachmt]

It's amazing what you can find when you do a Search. Here is the topic from NC DOR which explains the work period length and dates, the process which qualifies as vesting, and it even has a listing of the Federal pension programs in consideration of whether it is a qualifying pension or not:

https://www.ncdor.gov/taxes-forms/withholding-tax/individual-income-tax-directives-main/directive-pd...

Read it, and especially the part titled, "Qualifying Federal Retirement Systems."

So far, her comments are too vague. That article should be helpful.

[ElizabethLNC]

Thank you.  I'll read and see if it applies.