Federal Retirees

Sales Tax:
The proposals will slightly lower the state portion of the sales tax.
The NC Senate plan drops the rate from 4.75% to 4.50%.
The NC House plan drops it from 4.75% to 4.65%.
Remember the localities can also apply a sales tax typically 2% to 2.5%

The big change is what the sales tax is applied to.
The Senate plan includes taxing some 160 services as well as goods while eliminating loopholes. Car repairs, Lawn mower repairs, hair cuts and legal services would all be taxed under the Senate bill. Also prescription drugs and food would be taxed at the full rate (~6.75%), versus the 2% currently.

The House plan expands sales taxes only to services attached to tangible goods. So, the House plan would tax the delivery of a big appliance such as a refrigerator and repairs to cars and lawn mowers. But it would not tax lawn-mowing services or hair cuts. Prescription drugs and food would be taxed at the current rate of 2%EngineerJim2013-05-18 06:35:01

Just to be clear, the NC Senate has not released a bill yet, maybe soon.
So the above may change.
The NC House bill is at:
NC House tax bill EngineerJim2013-06-06 06:44:16

4. Car repairs, est $900/yr (tires, battery, brakes, A/C, radiator, etc)
5. Home repairs/maintenance (roof, siding, power washing, carpet cleaning)

And since our currency is being endlessly debased, you better factor in some heavy reduction in purchasing power in the future with this list!

Also add in that localities generate their revenues through added sales tax on top of the state's rate. The average total rate in NC is currently somewhere around 7%. As long as NC continues to assess an income tax and I'm covered under Bailey I'll make out compared to Maryland. Three more months until we move to NC full time.

There is some interpretation, but the way I read it a federal pension annuity (CSRS or FERS) is vested if the worker started 3-5 years before Aug 12, 1989. I believe to be vested in the TSP, a federal worker only needs to have made a contribution before Aug 12, 1989 (not the employer portion, but the employee contribution). FERS employees can look at there TSP annual statement and it will list the TSP SCD, so if that is before Aug 12, 1989 then they are vested in the TSP for Bailey Decision purposes.
Assuming they are vested as per the NC Bailey settlement, there are two factors that influence how much they will save.

1) Amount of pension (CSRS or FERS annuity, TSP withdrawls).
2) Comparing to the income tax rate of another state.

I live in Maryland right now, so I compare it to Maryland's effective rate of 7.75% (4.75% state plus 3.0% county income tax). If a federal retiree has $80,000 in retirement income (annunity plus TSP withdrawls), then the tax savings is:

$80,000 x 7.75% = $6,200 per year
Or $516 per month

Some state are higher, some are lower.
There are also some minor state exemptions for older people, such as age 65 or more exclude the first $20,000 (varies by state). But those are tiny changes ($20,000 x 7.75% = $1,550/yr or $129/month. And some states reduce the old age exemption if you have more than $X income.

I am in the CSRS, so the way I read eveything about the NC Bailey Decision/Settlement is that my pension (annuity) is exempt since I started at least 5 years before Aug 12, 1989. I don't know about the annuity portion of the FERS (3 yrs or 5 yrs?). But it is clear the TSP withdrawl portion only requires 3 years (like the NC state 401k system).

Regarding Skippy's mention of the income tax for NC residents who are working, I am assuming this is enough to fund NC pension liabilities & other major State expenses.

My point is that, if they eliminate income taxes, they will make up the shortfall in other ways like sales tax, property tax, etc.

I'm all for leaving it the way it is! That isn't self-serving, is it?   

EngineerJim,
I dunno.... I checked w/the TSP folks and they would not acknowledge that the TSP annual statement identifies a TSP SCD for the employee. They were helpful in identifying the exact date that the employee contributions to the TSP had started though.

This is the part about the Bailey decision that concerns me, how will the Dept of Revenue tax folks in North Carolina determine if the retired fed gov't employee qualifies for TSP distributions free from NC state tax? They reference "creditable service", but can the fed employee qualify for an earlier date for creditable service by buying military time? Will that purchase of military time be okay w/NC tax authorities? I guess I'll have to pay an accountant (or tax lawyer) to get a firm answer. As previously stated..... this could be quite a bit of money and would definitely be a windfall for the retiree, should he/she be willing to establish residency in North Carolina.