According to the North Carolina Department of Revenue website, military retirement pay may not be taxed at all if it meets certain requirements. Effective for tax years beginning on or after January 1, 2021, a taxpayer may deduct the amount of military retirement received as long as they are a retirement member of the US Armed Forces that:
- Served at least 20 years.
- Medically retired under 10 U.S.C. Chapter 61. This deduction does not apply to severance pay received by a member due to separation from the member's armed forces.
- Payments of a Plan defined in 10 U.S.C. 1447 to a beneficiary of a retired member eligible to deduct retirement pay under sub-subdivision a.
Note: Deduction is only allowed to the extent of payments that are included in the taxpayer's AGI.
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- Subtractions From Income
- Retirement Benefits received by a retired member of the US Armed Forces not deducted in other retirement benefits.