Welcome Guest! To enable all features please Login or Register.

Notification

Icon
Error

Federal Retirees


For those approaching retirement as well as the currently already retired, here is a forum to share ideas and thoughts and exchange questions and answers.


To read today's top news stories on federal employee pay, benefits, retirement, job rights and other workplace issues visit FederalDaily.com.

To maximize your retirement, we also suggest you read "Retired Federal Employees Almanac".


(Reminder: soliciting of services is not allowed on this site.)

5 Pages123>»
Options
Go to last post Go to first unread
Jim Hanrahan  
#1 Posted : Friday, May 17, 2013 9:59:20 PM(UTC)
EngineerJim

Rank: Senior Member

Groups: Registered
Joined: 2/17/2013(UTC)
Posts: 460
Man
United States
Location: USA

Was thanked: 20 time(s) in 18 post(s)
I am considering retirement to North Carolina, and wanted to start a topic on potential effects of the recent NC tax reform proposals on federal retirees.

Currently, the NC Bailey Decison, exempts CSRS/FERS annuities and TSP payouts if you meet the requirements for vesting in a federal retirement system before August 12, 1989. Link to NC Bailey Decision summary

I see tax plans developing in both the state's House and Senate.
Link to article
The NC Senate has bigger changes, it reduces income taxes steeply, relying much more on sales taxes to fund state government.
The NC House has many similar changes, but to a lesser degree and applies the sales tax to fewer services.
Jim Hanrahan  
#2 Posted : Friday, May 17, 2013 10:06:57 PM(UTC)
EngineerJim

Rank: Senior Member

Groups: Registered
Joined: 2/17/2013(UTC)
Posts: 460
Man
United States
Location: USA

Was thanked: 20 time(s) in 18 post(s)
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
Jim Hanrahan  
#3 Posted : Friday, May 17, 2013 10:23:55 PM(UTC)
EngineerJim

Rank: Senior Member

Groups: Registered
Joined: 2/17/2013(UTC)
Posts: 460
Man
United States
Location: USA

Was thanked: 20 time(s) in 18 post(s)
Income Tax:
Currently, the state's top income tax rate is 7.75 percent.
Tax Brackets (Single)
$0+ tax 6.00%
$12,750+ tax 7.00%
$60,000+ tax 7.75%

Tax Brackets (Married)
$0+ tax 6.00%
$21,250+ tax 7.00%
$100,000+ tax 7.75%

The NC House plan moves state income taxes to a flat 5.9 percent,
Married filing jointly would add a standard deduction of to $12,000,
Single filers would add a standard deduction of $6,000.
Rather than claim the standard deduction, it allows the option to itemized things like mortgage interest and charitable contributions.

The NC Senate plan lowers the state's top rate to 4.5 percent. People at the very lowest end of the income scale, those making roughly $12,000 per year, would pay no income tax.

I am still looking for any changes to the Bailey Decision on federal pension income.
Jim Hanrahan  
#4 Posted : Friday, May 17, 2013 10:45:55 PM(UTC)
EngineerJim

Rank: Senior Member

Groups: Registered
Joined: 2/17/2013(UTC)
Posts: 460
Man
United States
Location: USA

Was thanked: 20 time(s) in 18 post(s)
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
TotallyRetired  
#5 Posted : Saturday, May 18, 2013 12:07:04 AM(UTC)

Rank: Senior Member

Groups: Registered
Joined: 2/21/2013(UTC)
Posts: 1,577

Was thanked: 3 time(s) in 3 post(s)
Great idea for a forum topic!

--Suggest including a simple, prioritized short list of expenses that all retirees might incur. We could limit the list to expenses that would be impacted by proposed changes to the sales tax laws.

1. Grocery store food purchases
2. Drug store or mail order prescriptions
3. Services such as home health care aides

--Feedback & debate on the above list is encouraged.



Jim Hanrahan  
#6 Posted : Saturday, May 18, 2013 12:56:23 AM(UTC)
EngineerJim

Rank: Senior Member

Groups: Registered
Joined: 2/17/2013(UTC)
Posts: 460
Man
United States
Location: USA

Was thanked: 20 time(s) in 18 post(s)
Semi-Retired wrote:
Great idea for a forum topic!

--Suggest including a simple, prioritized short list of expenses that all retirees might incur. We could limit the list to expenses that would be impacted by proposed changes to the sales tax laws.

1. Grocery store food purchases
2. Drug store or mail order prescriptions
3. Services such as home health care aides

--Feedback & debate on the above list is encouraged.

4. Car repairs, est $900/yr (tires, battery, brakes, A/C, radiator, etc)
5. Home repairs/maintenance (roof, siding, power washing, carpet cleaning)
TotallyRetired  
#7 Posted : Saturday, May 18, 2013 1:03:49 AM(UTC)

Rank: Senior Member

Groups: Registered
Joined: 2/21/2013(UTC)
Posts: 1,577

Was thanked: 3 time(s) in 3 post(s)
#5.
I have heard that a good rule-of-thumb for this category is one percent.

That is, a $200,000 house purchased in good condition will probably need, on average, about $2,000 routine maintenance per year.

I have never tested this out but it seems reasonable as a minimum amount.

Semi-Retired2013-05-18 12:42:53
Jill  
#8 Posted : Saturday, May 18, 2013 2:45:43 AM(UTC)
ACEfed

Rank: Senior Member

Groups: Registered
Joined: 5/27/2012(UTC)
Posts: 268

Semi-Retired wrote:
Great idea for a forum topic!

--Suggest including a simple, prioritized short list of expenses that all retirees might incur. We could limit the list to expenses that would be impacted by proposed changes to the sales tax laws.

1. Grocery store food purchases
2. Drug store or mail order prescriptions
3. Services such as home health care aides

--Feedback & debate on the above list is encouraged.





And since our currency is being endlessly debased, you better factor in some heavy reduction in purchasing power in the future with this list!
MATMAN14  
#9 Posted : Saturday, May 18, 2013 3:12:17 AM(UTC)

Rank: Rookie

Groups: Registered
Joined: 6/5/2012(UTC)
Posts: 31

Thanks: 1 times
Was thanked: 1 time(s) in 1 post(s)
Thank you for this info Engineer Jim. Currently retired in VA BCH,VA and planning to move to Raleigh, NC next year as a " Bailey"!
Skippy1134  
#10 Posted : Saturday, May 18, 2013 11:01:33 PM(UTC)

Rank: Senior Member

Groups: Registered
Joined: 3/28/2013(UTC)
Posts: 284

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.
TotallyRetired  
#11 Posted : Thursday, May 23, 2013 2:33:12 AM(UTC)

Rank: Senior Member

Groups: Registered
Joined: 2/21/2013(UTC)
Posts: 1,577

Was thanked: 3 time(s) in 3 post(s)

I am not considering a move to NC but find this discussion interesting.

It seems that not everyone would be able to meet the 1989 Bailey tsp vesting requirement & that this is the key factor that makes NC an attractive State.

As a ballpark estimate, does it seem that the Bailey Decision is worth a State tax savings of $500-$1000 per month?

Semi-Retired2013-05-23 10:40:45
Jim Hanrahan  
#12 Posted : Thursday, May 23, 2013 2:56:53 AM(UTC)
EngineerJim

Rank: Senior Member

Groups: Registered
Joined: 2/17/2013(UTC)
Posts: 460
Man
United States
Location: USA

Was thanked: 20 time(s) in 18 post(s)
Semi-Retired wrote:
It seems that not everyone would be able to meet the 1989 Bailey tsp vesting requirement & that this is the key factor that makes NC an attractive State.

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.
Semi-Retired wrote:
As a ballpark estimate, does it seem that the Bailey Decision is worth a State tax savings of $500-$1000 per month?
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.

Quote:
NC DOR website: NC TAX RULES AND BULLETINS
The Thrift Savings Plan has both an employee and an employer
component. The employee component is similar to the State's 401(k)
and 457 plans and allows the employee to voluntarily contribute to the
Plan. The employee is vested in the employee component if the employee
first made a contribution to the plan prior to August 12, 1989.

An employee is vested in the employer fixed component only if the employee had three years of service (two years of service for certain highly ranked employees) as of August 12, 1989.

Skippy1134  
#13 Posted : Thursday, May 23, 2013 3:33:26 AM(UTC)

Rank: Senior Member

Groups: Registered
Joined: 3/28/2013(UTC)
Posts: 284

Semi-Retired wrote:

It seems that not everyone would be able to meet the 1989 Bailey tsp vesting requirement & that this is the key factor that makes NC an attractive State.


Here is the link http://www.dor.state.nc.us/taxes/individual/benefits.html

It is possible to be vested in say the annuity and not in the TSP. I checked with a tax specialist in NC a couple of years ago to ask about it. They had to look it up but agreed I met all of the vesting criteria.

Hopefully NC doesn't do away with income tax!!
Jim Hanrahan  
#14 Posted : Thursday, May 23, 2013 4:29:59 AM(UTC)
EngineerJim

Rank: Senior Member

Groups: Registered
Joined: 2/17/2013(UTC)
Posts: 460
Man
United States
Location: USA

Was thanked: 20 time(s) in 18 post(s)
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).
TotallyRetired  
#15 Posted : Thursday, May 23, 2013 5:28:59 AM(UTC)

Rank: Senior Member

Groups: Registered
Joined: 2/21/2013(UTC)
Posts: 1,577

Was thanked: 3 time(s) in 3 post(s)
So it seems as though the Bailey Decision savings is enough to fund a car payment.

Even though some retirees choose to pay cash for cars, I think the car payment example simplifies things.

TotallyRetired  
#16 Posted : Thursday, May 23, 2013 5:30:56 AM(UTC)

Rank: Senior Member

Groups: Registered
Joined: 2/21/2013(UTC)
Posts: 1,577

Was thanked: 3 time(s) in 3 post(s)
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.
Jordan Burt  
#17 Posted : Thursday, May 23, 2013 6:15:26 AM(UTC)
laurle

Rank: Senior Member

Groups: Registered
Joined: 1/22/2013(UTC)
Posts: 200

Plus the people are so friendly.
Skippy1134  
#18 Posted : Thursday, May 23, 2013 6:20:11 AM(UTC)

Rank: Senior Member

Groups: Registered
Joined: 3/28/2013(UTC)
Posts: 284

Semi-Retired wrote:
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?   
Jim Hanrahan  
#19 Posted : Thursday, May 23, 2013 9:55:56 PM(UTC)
EngineerJim

Rank: Senior Member

Groups: Registered
Joined: 2/17/2013(UTC)
Posts: 460
Man
United States
Location: USA

Was thanked: 20 time(s) in 18 post(s)
The NC legislator's say they have been running a surplus since about 2011 due to their spending control. So there is no reason to raise other taxes that are not part of NC Tax Reform to "make up" for the income tax reductions. Remember, broadening the base for sales tax is part of the reform.

Since the counties get a portion of the sales tax, broadening the base will give them more revenue, so they shouldn't need to raise property taxes. The way I understand it, unlike some other states, NC uses sales tax to help pay for schools. Some localities ("cities") may use a portion of real estate tax to supplement schools.

From http://www.nctaxcut.com/q-and-a/
Quote:
That big-spending culture changed in 2011, when legislators turned a $2.5 billion dollar deficit into a surplus. Now that we have spending under control, all we have to do is keep what we have and hold the line. Refusing to perpetuate a big-spending, big-government culture in Raleigh will put more money in your pockets and protect the services we need the most.
EngineerJim2013-05-24 06:15:30
2b_fers_retired  
#20 Posted : Thursday, May 23, 2013 10:12:16 PM(UTC)

Rank: Newbie

Groups: Registered
Joined: 6/26/2009(UTC)
Posts: 21

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.
Rss Feed  Atom Feed
Users browsing this topic
Guest
5 Pages123>»
Forum Jump  
You cannot post new topics in this forum.
You cannot reply to topics in this forum.
You cannot delete your posts in this forum.
You cannot edit your posts in this forum.
You cannot create polls in this forum.
You cannot vote in polls in this forum.


This page was generated in 0.869 seconds.