According to the North Carolina website, you are required to file a North Carolina return if you are a resident of North Carolina.
If you are a resident of North Carolina, your military pay is subject to North Carolina income tax.
If you are a nonresident of North Carolina, your active duty North Carolina pay is not taxable on the North Carolina return.
Your W-2 should not have North Carolina listed as the state. The program will not pull W-2 income to the state return unless North Carolina is selected. There will be no need to make any adjustments.
If one spouse is a resident and the other is not, you can file a married filing joint return or married filing separate state returns.
If you file married filing separate state returns but filed a married filing joint federal return, e-file the federal return and wait for the return to be accepted. Then, complete a federal return using the married filing separate status. Do not file the second federal return. Attach copies of both the married filing joint federal return and the married filing separate federal return to the printed North Carolina return. You cannot e-file the North Carolina return.
If you file a married filing joint return, all of the income is taxable on the return. Once you choose to file a married filing joint return, you cannot choose to file separate returns after the filing deadline.
Military benefits are not taxed in the State of North Carolina if the retiree had five or more years of creditable service as of August 12,1989. If this does not apply to the retiree, up to $4,000 of the retirement pay can be excluded.
To claim the exemption, follow these steps in the program:
- State Section
- Resident North Carolina return
- Subtractions From Income
- Enter the amount of taxable retirement benefits that qualify for the Bailey Settlement from Federal Form 1040, Line 16b
For more information, see