Does North Carolina tax military retirement pay?
Not taxed
No, for most career retirees. Since 2022 North Carolina lets you deduct military retired pay if you served at least 20 years or were medically retired, and Survivor Benefit Plan payments to your beneficiary qualify too. Shorter careers can still fall under the older Bailey decision if service began early enough.
In the state's own words
Copied word for word from the official documents linked below each quote:
“Effective for taxable years beginning on or after January 1, 2022, a taxpayer may deduct the amount received during the taxable year from the United States government for the following payments:”
“Retirement pay for service in the uniformed services of the United States to a retired member that meets either of the following:Served at least 20 years in the uniformed services.”
“Medically retired under 10 U.S.C. Chapter 61. This deduction does not apply to severance pay received by a member due to separation under 10 U.S.C. Chapter 61.”
“State of North Carolina, 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 the United States government retirees (including military).”
Details worth knowing
- The Bailey exclusion applies to retirees who had five or more years of creditable service as of August 12, 1989.
- The deduction is only for payments included in your adjusted gross income, and an amount deducted this way cannot also be deducted under the Bailey rule.
Other retirement income in North Carolina
Partly. Under the Bailey decision, North Carolina excludes benefits from certain state, local and federal defined benefit plans for retirees who had five or more years of service as of August 12, 1989. We found no general exclusion for other pensions in NCDOR's materials. The North Carolina pension page has the details, and the North Carolina Social Security page covers Social Security. No. North Carolina lets you deduct the Social Security that was taxed on your federal return.
Before you file or move
This page is about state income tax only. Your federal return has its own rules for military retired pay, and VA disability compensation is a separate benefit from retired pay. State rules change, and the details (age, years, which kinds of pay qualify, survivor benefits) matter. Check with the North Carolina Department of Revenue before you file or move.
Other states in the same group
Check our work
The answer above comes from these documents. Follow the link and compare.
- Military RetirementNorth Carolina Department of Revenue. Read on November 13, 2026.
- Bailey Decision Concerning Federal, State and Local Retirement BenefitsNorth Carolina Department of Revenue. Read on November 13, 2026.