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.
Who qualifies
- Available to any veteran
- North Carolina residency
How to apply
Varies by retirement pay (4.25% savings)
Apply through the official North Carolina agency.
Open applicationDetails
Eligibility
Veteran who served at least 20 years in the uniformed services OR was medically retired under 10 U.S.C. Chapter 61 (severance pay excluded). Deduction also applies to payments to beneficiaries under a Plan defined in 10 U.S.C. § 1447 (Survivor Benefit Plan). Effective for taxable years beginning on or after January 1, 2022. 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 qualifying military retirement payments from NC state income tax (to the extent included in adjusted gross income). NC flat individual income tax rate is 4.25% (2025) and is scheduled to drop 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.
Always confirm current rates and rules with the North Carolina state agency before applying.
Other North Carolina Tax Benefits
See every benefit you qualify for in North Carolina
Get a personalized list of federal, state, and local veteran benefits based on your service history, disability rating, and North Carolina residency — in under 2 minutes.
Find My North Carolina Benefits