Partly taxed
How North Carolina taxes retirement income
North Carolina does not tax Social Security. Most other retirement income is taxed at the state’s flat rate of 3.99% for 2026, including pensions from TSERS and the Local Governmental Employees’ Retirement System, company pensions and withdrawals from 401(k), 403(b), 457(b) and IRA accounts.
The big exception comes from a 1989 court settlement known as Bailey. If you had five or more years of creditable service in a North Carolina state or local retirement system, or in a federal retirement system, by August 12, 1989, your pension from that system is fully exempt. The same applies to the state’s 401(k) and 457 plans if you were contributing before that date. Rolling Bailey-protected money into an IRA ends the exemption, so leave it in the plan or take payments directly.
Pensions from other states’ systems never qualify for Bailey. Military retirees with 20 years of service, or who were medically retired, can deduct their military retirement pay.
North Carolina public pensions
For the formula, payment dates and raises in your plan, see NC TSERS.
Questions
Does North Carolina tax TSERS pensions?
Yes, unless you had five years of service by August 12, 1989. Those Bailey-protected pensions are fully exempt.
Does North Carolina tax Social Security?
No. Social Security is fully exempt.
What rate does North Carolina charge on retirement income?
A flat 3.99% for 2026.