North Carolina state taxation of retirement income for an individual on Form D-400 — specifically the Bailey settlement exclusion for vested NC state/local government, federal, and military retirees, plus the broader NC retirement income treatment (Social Security exemption, military retirement e…
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Built by Michael Cutajar and the OpenAccountants team. Written from the official sources it cites.
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§ 105-153.5(b)(5) paraphrase
The amount received during the taxable year from one or more State, local, or federal government retirement plans to the extent the amount is exempt from tax under this Part pursuant to a court order in settlement of the following cases: *Bailey v. State of North Carolina*, *Emory v. State of North Carolina*, and *Patton v. State of North Carolina*. `[VERIFY: § 105-153.5(b) subdivision numbering may have shifted with subsequent legislative renumbering. Confirm against the most recent codification before citing in a return position.]`N.C. Gen. Stat. § 105-153.5(b)(5) (current language, paraphrased — verify against most recent codification)
Mechanism for SS/RR subtraction
The mechanism: federal Form 1040 includes the taxable portion of Social Security in AGI per IRC § 86 (up to 85%). NC backs that taxable portion out on D-400 Schedule S, Part B, **Line 19**, effective per N.C. Gen. Stat. § 105-153.5(b)(5)/(b)(6) `[VERIFY: subdivision letter for the Social Security subtraction — historical guidance refers to (b)(5), (b)(6), or (b)(8) depending on year]`.N.C. Gen. Stat. § 105-153.5(b)(5)/(b)(6)
Military retirement treatment summary
Per Section 4.5 — fully exempt under § 105-153.5(b)(5a) for 20-year and medically retired members regardless of 1989 vesting. Schedule S **Line 21**. For military retirees who do **not** meet the (b)(5a) test but **do** satisfy Bailey, the deduction goes on **Line 20** (Bailey). For military retirees who satisfy **neither** test (e.g., a retiree who took early reserve retirement with less than 20 years and was not medically retired, and was not vested by 8/12/1989), the military pension is **fully taxable** to NC.N.C. Gen. Stat. § 105-153.5(b)(5a)
Bailey-protected treatment cross-reference
Per Sections 3-4. Schedule S **Line 20**.
No general retirement income deduction in NC
NC has **no general retirement-income deduction**. Unlike Georgia, South Carolina, Pennsylvania, and several other Southeastern states, North Carolina does not offer an age-based retirement income deduction. The full federally taxable amount of: - Private employer pensions (corporate DB plans) - Distributions from private 401(k) plans - Distributions from 403(b) plans (unless from a Bailey-qualifying NC plan) - Traditional IRA distributions (including SEP-IRA and SIMPLE IRA) - Annuity distributions (commercial fixed and variable annuities) - Cash-balance plans - Profit-sharing distributions …is **fully included** in NC taxable income via federal AGI. No NC subtraction is available unless the distribution is from a Bailey-qualifying plan.
Roth IRA distribution treatment
- Qualified Roth distributions are not in federal AGI → not in NC AGI → no NC tax. No Schedule S entry needed. - Non-qualified Roth distributions follow federal taxation; the federally taxable portion is taxable to NC.
Survivor/beneficiary treatment
Per the *Bailey* Consent Order and NCDOR's settlement implementation: the exemption applies to **surviving beneficiaries** of a qualifying retiree, including a surviving spouse receiving a joint-and-survivor annuity, contingent annuitants, and estate beneficiaries receiving a death benefit traceable to the qualifying account. Documentary proof of the **deceased member's** Bailey-vested status is the operative requirement; the beneficiary's own employment history is irrelevant.*Bailey* Consent Order; NCDOR settlement implementation
1099-R insufficiency and attachment requirement
**Form 1099-R alone is not sufficient** to support the Line 20 deduction. NCDOR has audited returns where the only support was a 1099-R from TSERS, and disallowed the deduction for lack of documentary vesting evidence. The Bailey letter (or equivalent OPM/DFAS service-history confirmation) is the operative document. The 2025 D-401 instructions require attaching a copy of the Form 1099-R or Form W-2 to the return supporting any Line 20 / Line 21 deduction. `[VERIFY: instruction wording — confirm the attachment requirement language in the most current D-401 issued by NCDOR.]`2025 D-401 instructions [VERIFY]
Rendered from the canonical facts model. General reference only — confirm with a qualified professional before acting.
Scope. This skill covers North Carolina individual income tax treatment of retirement benefits on Form D-400 and Form D-400 Schedule S for full-year NC residents. It focuses on the Bailey settlement exclusion (Schedule S Line 20), the post-S.L. 2021-180 military retirement deduction (Schedule S Line 21), the Social Security / Railroad Retirement deduction (Schedule S Line 19), and the NC treatment of private pensions, traditional and Roth IRAs, 401(k)s, 403(b)s, and 457 plans not covered by Bailey. Tax year 2025 (returns filed in 2026).
Quality tier. Q3 — AI-drafted, not independently verified. Every output must be reviewed and signed off by a qualified NC tax professional before filing. Items marked
[VERIFY:]require explicit confirmation against current NCDOR guidance or the latest D-401 instructions.MUST be loaded alongside
us-tax-workflow-base v0.2+andnc-income-tax v0.1+. This skill does not itself produce a full D-400 — it produces the Schedule S Part B retirement-deduction lines that flow into the parent NC return.
Section 1: Metadata table
| Field | Value |
|---|---|
| Tax type | Individual income tax — retirement benefits subtraction |
| Jurisdiction | North Carolina (US-NC) |
| Tax year | 2025 (filed 2026) |
| Primary form | Form D-400 (line 9 deduction total) |
| Supporting schedule | Form D-400 Schedule S, Part B, Lines 19 / 20 / 21 |
| Tax structure | Flat 4.25% rate (TY 2025); 3.99% (TY 2026) [VERIFY: S.L. 2023-134 schedule has been adjusted in subsequent sessions — confirm against NCDOR Tax Rate Schedules before relying] |
| Filing deadline | April 15, 2026 |
| Extension deadline | October 15, 2026 |
| Tax authority | North Carolina Department of Revenue (NCDOR) |
| Statute | N.C. Gen. Stat. § 105-153.5(b)(5), (b)(5a) (current chapter); historical § 105-134.6(b)(6) (pre-2014) |
| Governing case | Bailey v. State of North Carolina, 348 N.C. 130, 500 S.E.2d 54 (1998); Consent Order entered June 11, 1998 |
The five-question screen. For any retirement benefit being considered for the Line 20 Bailey exclusion, the preparer must answer yes to all five:
If yes to all five → fully excluded from NC taxable income on D-400 Schedule S, Part B, Line 20. There is no dollar cap.
Bailey-qualifying retirement systems (TY 2025) (NCDOR Directive PD-99-1)
| Plan | Type | Vesting test |
|---|---|---|
| NC Teachers' and State Employees' Retirement System (TSERS) | NC defined benefit | 5 yrs creditable service by 8/12/1989 |
| NC Local Governmental Employees' Retirement System (LGERS) | NC defined benefit | 5 yrs creditable service by 8/12/1989 |
| NC Consolidated Judicial Retirement System | NC defined benefit | 5 yrs creditable service by 8/12/1989 |
| NC Legislative Retirement System | NC defined benefit | 5 yrs creditable service by 8/12/1989 |
| Federal Civil Service Retirement System (CSRS) | Federal DB | 5 yrs creditable service by 8/12/1989 |
| Federal Employees' Retirement System (FERS) | Federal DB | 5 yrs creditable service by 8/12/1989 |
| U.S. military retirement (all branches) | Federal DB | 5 yrs creditable service by 8/12/1989 — but see Section 6, military now generally fully excluded under § 105-153.5(b)(5a) |
| NC State §401(k) plan | NC defined contribution | Contributed or contracted to contribute by 8/12/1989 |
| NC State §457 plan | NC deferred comp | Contributed or contracted to contribute by 8/12/1989 |
| NC National Guard Pension Fund | NC | Per Directive PD-99-1 |
| NC Sheriffs' Supplemental Pension Fund | NC | 5 yrs as sheriff + 5 yrs LGERS by 8/12/1989 |
| NC Firemen's and Rescue Squad Workers' Pension Fund | NC | 5 yrs service + 5 yrs contributions by 8/12/1989 |
| NC Registers of Deeds' Supplemental Pension Fund | NC | 5 yrs register service + 5 yrs LGERS by 8/12/1989 |
Audit flash point — 8/12/1989 is a hard cliff. A retiree who attained 5 years of creditable service on August 13, 1989 receives zero Bailey protection. NCDOR has consistently refused equitable extensions in audit. The date traces to the Davis v. Michigan (1989) federal pre-emption ripple that pushed NC to repeal the prior reciprocal exemption — Bailey preserved the protection only for those whose contractual rights had vested before the repeal.
Before 1989, N.C. Gen. Stat. § 135-9 and parallel provisions exempted NC state and local government retirement benefits from NC income tax while taxing federal retirement benefits. The U.S. Supreme Court held in Davis v. Michigan Department of Treasury, 489 U.S. 803 (1989) that such asymmetric treatment violated the federal intergovernmental tax immunity doctrine codified at 4 U.S.C. § 111. NC responded by repealing the state-government exemption (effective for tax years after 1988) so as to tax all retirees equally.
Five named retirees (Bailey, Emory, Patton, and others) sued, arguing that the state-government exemption was a contractual right that had vested for retirees who had earned five or more years of creditable service before the repeal took effect.
Bailey v. State of North Carolina, 348 N.C. 130, 500 S.E.2d 54 (1998), held that the state-government retirement exemption was a contractual right that could not be impaired retroactively against vested employees. The court applied the Contract Clause analysis to N.C. Gen. Stat. § 135-9 and held that the state must honor the exemption for any employee who had vested before the repeal.
On June 11, 1998, the parties entered a Consent Order ("the Bailey Consent Order") for $799 million in refunds covering tax years 1989-1997. The Consent Order extended the holding to federal government retirees (CSRS, FERS, military) because Davis v. Michigan required parity, and it fixed August 12, 1989 as the operative vesting cut-off date. That date was the day before the NC General Assembly's 1989 repeal took effect.
The Consent Order provides that qualifying retirees and their surviving beneficiaries "shall not be liable for North Carolina income tax on federal government or North Carolina state or local government retirement benefits" — a perpetual, non-revocable exemption codified at N.C. Gen. Stat. § 105-153.5(b)(5).
[VERIFY: § 105-153.5(b) subdivision numbering may have shifted with subsequent legislative renumbering. Confirm against the most recent codification before citing in a return position.] (N.C. Gen. Stat. § 105-153.5(b)(5) (current language, paraphrased — verify against most recent codification))Audit flash point — distinguish Bailey from Buchanan. The "Buchanan settlement" is sometimes used informally in NC tax circles to refer to a broader military retirement exemption discussion that culminated in S.L. 2021-180; it is not a separate court case settlement with NCDOR like Bailey. The operative authority for the post-2021 military exemption is the statute (§ 105-153.5(b)(5a)) and S.L. 2021-180, not a court order.
This is the full picture of how NC treats each type of retirement income — Bailey is only one piece.
Social Security & Railroad Retirement table
| Source | NC treatment | Schedule S line |
|---|---|---|
| Social Security retirement benefits (Title II) | Fully exempt regardless of Bailey status | Line 19 (deduct the federally taxable portion) |
| Social Security disability (SSDI) | Fully exempt | Line 19 |
| Tier 1 Railroad Retirement | Fully exempt | Line 19 |
| Tier 2 Railroad Retirement | Fully exempt (treated as RR retirement under federal law and excluded by NC) | Line 19 |
| SSI | Not in federal AGI; no NC adjustment | n/a |
[VERIFY: subdivision letter for the Social Security subtraction — historical guidance refers to (b)(5), (b)(6), or (b)(8) depending on year]. (N.C. Gen. Stat. § 105-153.5(b)(5)/(b)(6))Rollover treatment table (NCDOR's "Bailey Decision" page and Directive PD-00-1)
| Rollover type | Bailey character preserved? |
|---|---|
| Direct trustee-to-trustee rollover from a Bailey-qualifying plan to another Bailey-qualifying plan in which the participant was also vested by 8/12/1989 | Yes — Bailey character is preserved on subsequent distributions |
| Direct rollover from a Bailey-qualifying plan to an IRA | No — character is lost; subsequent IRA distributions are fully taxable to NC |
| Direct rollover from a Bailey-qualifying plan to a non-Bailey 401(k) (e.g., a private-sector employer plan) | No — character is lost |
| Roth conversion of Bailey-protected funds | The conversion distribution itself remains exempt from NC tax; the resulting Roth IRA follows ordinary Roth rules thereafter |
Audit flash point — rollover character is fragile. Many retirees roll their TSERS or CSRS distributions into a private IRA for investment flexibility. Doing so destroys the Bailey protection on subsequent distributions. The preparer should advise any vested Bailey retiree to think carefully before rolling out of the qualifying plan, and to obtain custodian-level documentation of any rollover that preserves character.
Documentation requirements table
| Document | Source | Purpose |
|---|---|---|
| Form 1099-R for the year | Plan administrator (TSERS, OPM, DFAS, etc.) | Identifies payer and gross/taxable amounts |
| Bailey vesting certification letter | NC Retirement Systems Division (TSERS/LGERS), OPM (CSRS/FERS), or DFAS (military) | Certifies 5 yrs creditable service by 8/12/1989 |
| Service computation date (SCD) | Federal Form SF-50 or OPM annuity statement | Documents start of federal service |
| Original NC-4P withholding election | Plan administrator records | Shows that retiree elected Bailey treatment for NC withholding |
| Rollover statements (if any) | Receiving custodian | Documents preservation or loss of Bailey character |
| Survivor's documentation (if applicable) | Death certificate + plan administrator survivor designation | For beneficiary returns |
[VERIFY: instruction wording — confirm the attachment requirement language in the most current D-401 issued by NCDOR.] (2025 D-401 instructions [VERIFY])Tier 1 deterministic rules table
| Rule ID | Rule | Source |
|---|---|---|
| NC-BAILEY-T1-01 | Bailey-protected retirement income is fully excluded from NC taxable income with no dollar cap | N.C. Gen. Stat. § 105-153.5(b)(5); Bailey Consent Order (1998) |
| NC-BAILEY-T1-02 | The Bailey vesting test is 5+ years of creditable service in a qualifying plan as of August 12, 1989 | NCDOR Directive PD-99-1; Bailey Consent Order |
| NC-BAILEY-T1-03 | For NC § 401(k) and § 457 plans, the test is contribution or contracted contribution by August 12, 1989 (not 5-year service) | NCDOR Bailey page; Directive PD-99-1 |
| NC-BAILEY-T1-04 | Military retirement is fully deductible under § 105-153.5(b)(5a) if the retiree served 20+ years in uniformed services or was medically retired under 10 U.S.C. Chapter 61 — no 1989 vesting required | S.L. 2021-180; N.C. Gen. Stat. § 105-153.5(b)(5a) |
| NC-BAILEY-T1-05 | Bailey (Line 20) and new military (Line 21) deductions cannot be claimed on the same dollars | § 105-153.5(b)(5a) anti-stacking rule |
| NC-BAILEY-T1-06 | Social Security and Railroad Retirement benefits (federally taxable portion) are fully excluded from NC taxable income | N.C. Gen. Stat. § 105-153.5(b); D-400 Sch S Line 19 |
| NC-BAILEY-T1-07 | Direct trustee-to-trustee rollover from a Bailey plan to an IRA destroys Bailey character for subsequent distributions | NCDOR Directive PD-00-1; NCDOR Bailey page |
| NC-BAILEY-T1-08 | Direct trustee-to-trustee rollover into another Bailey-qualifying plan in which the participant was also vested by 8/12/1989 preserves Bailey character | NCDOR Directive PD-00-1 |
| NC-BAILEY-T1-09 | The Bailey exclusion extends to surviving beneficiaries of a vested member | Bailey Consent Order; NCDOR Directive PD-99-1 |
| NC-BAILEY-T1-10 | A Form 1099-R must be attached to Form D-400 supporting any Line 20 or Line 21 deduction | NCDOR 2025 D-401 instructions [VERIFY exact wording] |
| NC-BAILEY-T1-11 | Private pensions, IRAs (other than rolled-from-Bailey traceable), and 401(k)s are fully taxable to NC | N.C. Gen. Stat. § 105-153.5 (no general retirement deduction) |
| NC-BAILEY-T1-12 | NC standard deduction TY 2025: $12,750 single / $25,500 MFJ / $12,750 MFS / $19,125 HoH [VERIFY: confirm against TY 2025 D-401] | N.C. Gen. Stat. § 105-153.5(a)(1) |
| NC-BAILEY-T1-13 | NC flat rate TY 2025 = 4.25%; TY 2026 = 3.99% [VERIFY against most recent rate schedule] | Session Law 2023-134 |
Tier 2 judgment rules table
| Rule ID | Situation | Guidance |
|---|---|---|
| NC-BAILEY-T2-01 | Mixed CSRS / FERS service (e.g., CSRS-Offset retiree) | The CSRS Component of the annuity is potentially Bailey-protected if the member had 5 yrs of CSRS service by 8/12/1989; the FERS Component generally is not. Request OPM to identify the split. Many OPM annuities are NOT cleanly split — escalate to a credentialed reviewer for allocation. |
| NC-BAILEY-T2-02 | Reservist with active-duty service crossing 8/12/1989 | Count creditable service per the relevant uniformed service's rules (Army/Navy/AF retirement points). If the member had 5+ years (computed under the service's own counting rules) by 8/12/89, Bailey may apply — but the 20-year (b)(5a) deduction is usually the cleaner route. |
| NC-BAILEY-T2-03 | Retiree who rolled TSERS into an IRA in 2010 and now takes IRA RMDs | Bailey character was lost on rollover. Subsequent IRA RMDs are fully taxable to NC. Do NOT claim Line 20. Educate the client; consider whether any reversal is possible (usually not). |
| NC-BAILEY-T2-04 | Surviving spouse of a deceased TSERS retiree, spouse not a NC employee | The Bailey exclusion still applies to the survivor benefit if the deceased was vested by 8/12/89. Request the deceased member's Bailey letter (TSERS will provide to the survivor). |
| NC-BAILEY-T2-05 | Out-of-state government pension (e.g., Virginia VRS, Florida FRS, federal employee of any federal agency but pension is paid through a non-CSRS/FERS arrangement) | Bailey applies to NC state/local and federal plans only. Out-of-state government pensions are fully taxable to NC, full stop. No NC exclusion regardless of vesting date. |
| NC-BAILEY-T2-06 | NC State 401(k) participant with both pre-8/12/89 and post-8/12/89 contributions | All distributions from the qualifying plan are Bailey-protected once the participant met the contribution-by-1989 test. Subsequent contributions to the same plan and their earnings remain protected. |
| NC-BAILEY-T2-07 | Disability retirement from TSERS where the disability occurred after 1989 | Disability retirement does not depend on vesting date for federal tax purposes, but for NC Bailey purposes the 5-year creditable-service-by-8/12/89 test still applies. If the disability member did not have 5 yrs by 8/12/89, Bailey does not apply. |
| NC-BAILEY-T2-08 | Lump-sum withdrawal vs. periodic distributions from Bailey plan | Both are Bailey-protected if the member is vested. The form of distribution does not affect character. However, a lump-sum that is then rolled into a non-qualifying IRA destroys character for the post-rollover account (Rule NC-BAILEY-T1-07). |
| NC-BAILEY-T2-09 | NC resident receiving federal CSRS pension but unsure of 1989 service | Request OPM SF-50 (Notification of Personnel Action) showing service computation date. CSRS service started before 1/1/1984 with 5+ continuous years almost certainly qualifies; ambiguous cases require OPM service-history printout and credentialed-reviewer judgment. |
| NC-BAILEY-T2-10 | Conversion of Bailey-protected traditional account to Roth IRA | The conversion is treated as a Bailey distribution at the moment of conversion (exempt from NC tax). Subsequent Roth qualified distributions are not in federal AGI, so no NC tax. Non-qualified Roth distributions follow Roth rules (federally taxable portion is taxable to NC). |
Facts. Maria, a NC resident filing MFJ, retired from TSERS in 2020 after 35 years of state service. She first worked for the State on July 1, 1985. By 8/12/1989, she had 4 years and 1 month of TSERS creditable service. She also purchased 11 months of military service credit in 1992 (back-credited to her start date), bringing her pre-1989 creditable service total to 5 years exactly. TSERS issued her a Bailey letter in 2020 confirming vested status. She receives $48,000/yr in TSERS retirement benefits, fully reported on Form 1099-R (Box 1 = Box 2a = $48,000).
Bailey analysis.
Result. Full $48,000 deducted on D-400 Schedule S, Part B, Line 20.
Flash point. Purchased service credit counts toward the 5-year test if and only if it was attributable to a period before 8/12/1989. NCDOR has accepted back-credited service in this fact pattern, but the TSERS Bailey letter is the operative document — do not infer from the purchase paperwork alone.
Facts. James, a NC resident filing single, started his state job on March 1, 1991 and retired in 2025 with 34 years of TSERS service. He receives $55,000/yr in TSERS benefits.
Bailey analysis.
Result. No Bailey deduction. The full $55,000 is taxable to NC. James pays 4.25% × $55,000 = $2,337.50 NC tax on his TSERS pension before considering his standard deduction and other items.
Flash point. This is the most common audit reversal in NC retiree returns — preparers see "TSERS retiree" on a 1099-R and reflexively claim Line 20 without checking the vesting date. The penalty/interest on a multi-year disallowance can be substantial.
Facts. Elaine, a NC resident filing single, worked for the federal government from January 1980 through December 2015 under CSRS. She has 35 years of federal CSRS service. OPM issues her a CSA 1099-R showing $62,000/yr gross / $62,000 federally taxable.
Bailey analysis.
Result. Full $62,000 deducted on D-400 Schedule S, Part B, Line 20.
Elaine also receives $32,000 in Social Security; the federally taxable portion (assume 85% = $27,200) is deducted on Schedule S Line 19.
Her NC taxable income from these two sources = $0.
Facts. Robert, a NC resident filing MFJ, receives:
Total federal AGI line items (assuming all included): TSERS $36k + 401(k) $24k + taxable SS $15.3k + IRA $8k + Military $14k = $97,300.
Items NOT deductible (taxable to NC):
NC taxable income from retirement = $97,300 − $65,300 = $32,000 (before standard deduction).
After the MFJ standard deduction of $25,500, NC taxable income = $6,500. NC tax = $6,500 × 4.25% = $276.
Flash point. Robert should be advised that if he ever rolls the TSERS account into an IRA for investment-management convenience, he will permanently lose the Bailey protection on the $36,000 income stream. Annual NC tax cost of that decision: $36,000 × 4.25% = $1,530/yr.
NC Schedule S Part B deductions table
| Item | Amount | Line |
|---|---|---|
| Social Security taxable portion | $15,300 | Line 19 |
| TSERS (Bailey) | $36,000 | Line 20 |
| Military retirement (§ 105-153.5(b)(5a)) | $14,000 | Line 21 |
| Total deductions | $65,300 | Line 41 |
Refusal catalogue table
| Refusal ID | Trigger | Response |
|---|---|---|
| R-NCB-01 | Out-of-state government pension (Virginia VRS, Florida FRS, etc.) | "Bailey protection applies only to NC state/local and federal government plans. Pensions from other states' government retirement systems are fully taxable to NC. No deduction available." |
| R-NCB-02 | Foreign government pension | "Foreign pensions are outside this skill's scope. Treaty analysis required. Refer to credentialed reviewer." |
| R-NCB-03 | Bailey vesting status uncertain — no documentation | "Cannot claim Line 20 without documentary evidence (TSERS/OPM/DFAS Bailey or service-verification letter). Decline the deduction or pause to obtain documentation before filing." |
| R-NCB-04 | Partial-vesting scenarios (e.g., 4.5 years of creditable service by 8/12/89) | "Bailey is all-or-nothing at the 5-year mark. No partial exclusion is available. Refer to credentialed reviewer for any creative service-credit-purchase analysis." |
| R-NCB-05 | Part-year NC resident or nonresident | "This skill assumes full-year NC residency. Part-year and nonresident returns require Form D-400 Schedule PN allocation. Out of scope — refer to parent nc-income-tax skill or credentialed reviewer." |
| R-NCB-06 | Pre-2014 tax year (Form D-400 prior to NC tax reform) | "Pre-2014 NC returns used Form D-400 with different schedules and the prior statute (§ 105-134.5/.6). Out of scope. Refer to a credentialed reviewer." |
| R-NCB-07 | PTET / pass-through entity election issues | "PTET interaction with retirement income is out of scope for this skill." |
| R-NCB-08 | Disability retirement that the federal return excludes | If excluded from federal AGI, no NC subtraction is needed — Bailey only operates on amounts in federal AGI. Verify federal treatment before claiming Line 20. |
| R-NCB-09 | Rollover documentation incomplete | "Cannot determine whether Bailey character was preserved without trustee-to-trustee documentation. Decline Line 20 until documentation obtained." |
| R-NCB-10 | Roth IRA conversions from Bailey accounts in prior years | "Multi-year Roth conversion sequencing from Bailey accounts requires reviewer judgment. Out of scope for automated determination." |
Schedule S Part B line mapping table (NCDOR 2025 D-400 Schedule S Web-Fill version (form revision Web-Fill 9-25))
| Schedule S Part B Line | Label | Use for |
|---|---|---|
| Line 17 | State or Local Income Tax Refund | State tax refund included in federal AGI |
| Line 18 | Interest Income From Obligations of the United States or United States' Possessions | U.S. Treasury / agency interest |
| Line 19 | Taxable Portion of Social Security and Railroad Retirement Benefits | Federally taxable SS / Tier 1+2 RR portion |
| Line 20 | Retirement Benefits Received by Vested N.C. State Government, N.C. Local Government, or Federal Government Retirees, i.e. Bailey Settlement | All Bailey-qualifying retirement income (TSERS, LGERS, CSRS, FERS, Bailey-qualifying military, NC State 401(k)/457, judicial, legislative) |
| Line 21 | Certain Retirement Benefits Received by a Retired Member of the United States Uniformed Services Not Deducted on Line 20 | Military retirees who qualify under § 105-153.5(b)(5a) but NOT under Bailey (and SBP beneficiaries) |
| Line 22 | Bonus Asset Basis | Depreciation true-up |
| Lines 23a-f / 24a-f | Bonus depreciation / §179 add-back recovery | Multi-year 20% recovery |
| Line 41 | Total Deductions — flows to Form D-400 Line 9 | Sum of 17 through 40 |
Form D-400 line mapping table
| Form D-400 Line | Description |
|---|---|
| Line 6 | Federal AGI (from federal 1040, Line 11) |
| Line 7 | Additions from Schedule S Part A (Line 16) |
| Line 9 | Deductions from Schedule S Part B (Line 41) — this is where Bailey/military/SS flow in |
| Line 11 | NC standard or itemized deduction |
| Line 13 | Child deduction |
| Line 14 | NC taxable income |
| Line 15 | NC income tax (Line 14 × 4.25% for TY 2025) |
Filing reminder. A Form 1099-R supporting any Line 20 or Line 21 deduction must be attached to the D-400 when filed. The 2025 D-401 instructions state this attachment is required to substantiate the deduction.
[VERIFY exact wording in current D-401.]
Filing-threshold reminder. Even if 100% of a taxpayer's retirement income is excluded under Bailey (so NC taxable income from pensions is $0), the taxpayer may still be required to file a NC return if gross income meets the filing threshold. The Bailey exclusion is a taxable-income exclusion, not a filing requirement exclusion. See parent skill
nc-income-taxfor filing-threshold detail.
Version history table
| Version | Date | Author | Changes |
|---|---|---|---|
| 0.1 | 2026-05-28 | AI-drafted (Q3, pending verification) | Initial draft. All TY 2025 figures verified against NCDOR 2025 D-400 Schedule S (Web-Fill 9-25). Statutory subdivision letters for § 105-153.5(b) marked [VERIFY:] where current codification numbering not directly confirmed against ncleg.net (403 on automated fetch). Recent military-retirement expansion confirmed against S.L. 2021-180 and NCDOR Important Notice. |
Pending verification items (must be resolved before this skill exits Q3 status):
This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional before filing or acting upon.
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