Military Retirement Pay State Income Tax Exemption
100% deduction of military retirement pay from NC state income tax for veterans with 20+ years or medical retirement.
Apply now
Apply directly through the official North Carolina agency.
About this benefit
Eligibility
Veteran who served at least 20 years in the U.S. Armed Forces OR was medically retired. Also covers Survivor Benefit Plan (SBP) payments. Separately, the "Bailey Settlement" exempts retirement income based on service that includes 5+ years of creditable service earned before August 1989.
Covers
100% deduction of military retirement pay from NC state income tax. NC's rate is 4.25% (2025), dropping to 3.99% (2026). For a $30,000/year military pension, this saves roughly $1,200-$1,275/year.
How to claim
Claimed on your NC state income tax return. No separate application.
Verified against official source
Last checked 2026-05-04 against www.ncdor.gov. Always confirm current rates and rules with the North Carolina state agency before applying.
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