Does North Carolina tax pensions and retirement income?
Taxed, with a retirement exclusion
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.
In the state's own words
Copied word for word from the official document linked below each quote:
“All distributions from a qualifying Bailey retirement account in which the employee/retiree was "vested" as of August 12, 1989, are exempt from state income tax regardless of the source of the funds contained in the account.”
And Social Security?
No. North Carolina lets you deduct the Social Security that was taxed on your federal return. The North Carolina Social Security page quotes the rule.
Federal tax still applies
Whatever North Carolina does, pensions, annuities and traditional IRA or 401(k) withdrawals are generally taxable on your federal return. See the federal tax brackets and, if you are 73 or older, the required minimum distribution calculator.
State rules change, and the details (age limits, income limits, which plans qualify) 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 this document. Follow the link and compare.
- Bailey Decision Concerning Federal, State and Local Retirement BenefitsNorth Carolina Department of Revenue. Read on November 12, 2026.