Military Retirement

Session Law 2021-180 created a new North Carolina deduction for certain military retirement payments. Effective for taxable years beginning on or after January 1, 2021, a taxpayer may deduct the amount received during the taxable year from the United States government for the following payments:

• Retirement pay for service in the Armed Forces of the United States to a retired member that meets either of the following:
  • 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. of this subdivision.

The deduction is only allowed to the extent the payments are included in the taxpayer's adjusted gross income.  

Note: Amounts deducted under G.S. 153.5(b)(5a) may not also be deducted under G.S. 153.5(b)(5).

The Department will issue additional guidance about this deduction in 2022.