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Jim Hanrahan  
#21 Posted : Thursday, May 23, 2013 10:36:28 PM(UTC)
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From page 13 of the NC income tax instructions for form D400,
Quote:
A retiree entitled to exclude retirement benefits from North Carolina income tax should claim a deduction on Line 41 for the amount of excludable retirement benefits included in federal adjusted gross income.

A copy of Form 1099-R or W-2 received from the payer must be attached to the return to support the deduction
martyb  
#22 Posted : Thursday, May 23, 2013 10:37:11 PM(UTC)

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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.


I don't know about that. My friend who works for the NC prison system describes their state pension system as being screwed up with no end in sight.
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TotallyRetired  
#23 Posted : Thursday, May 23, 2013 11:03:20 PM(UTC)

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2b_fers_retired,

Regarding your comment as to whether a "fed employee can qualify for an earlier date for creditable service by buying military time..."

it occurred to me that those retiring under CSRS-Offset could be facing a similar issue as the military person in your example.

As you may know, there are a considerable number of babyboomer women who dropped out of the federal workforce for a few years to raise children & were placed under the CSRS-Offset retirement plan upon their return.

In response to the question you raised about the Bailey Decision,

I want to mention that an H&R Block office that is physically located in North Carolina is probably up-to-speed on the Bailey Decision. My experience with H&R Block is that they are willing to answer one question free-of-charge, even for drop-ins. Semi-Retired2013-05-24 07:16:06
TotallyRetired  
#24 Posted : Thursday, May 23, 2013 11:20:44 PM(UTC)

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Martyb,

I am interpreting the comment from your cousin to mean that the NC pension system might be underfunded.

The State probably has a plan to fix this through other taxes that might be unavoidable by retirees.

It seems that the Bailey Decision is worth about $500-$1,000 for most retirees. I don't know how to go about figuring out whether that amount will be offset by other taxes.
Jim Hanrahan  
#25 Posted : Thursday, May 23, 2013 11:53:01 PM(UTC)
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The NC Senate passed a budget (goes to House), stating a tax reform dollar amount, but not the details (to be supplied separately). But it does say this:

Quote:
increase state retirement system contribution by $36 million for state employees, teachers.

Link to article
TotallyRetired  
#26 Posted : Friday, May 24, 2013 12:44:16 AM(UTC)

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I don't know if $36M funding approved by the Senate is enough as I haven't been following this issue.

I'll do some digging on this, as I'm thinking it is the key to predicting future taxes.
martyb  
#27 Posted : Friday, May 24, 2013 12:49:56 AM(UTC)

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Doesn't sound like a lot when talking about so many employees/retirees. I grew up in NC.
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NCP  
#28 Posted : Friday, May 24, 2013 5:41:05 AM(UTC)

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2b_fers_retired wrote:
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.


Since military service (where the deposit was paid) is considered "creditable service" under FERS, (see http://www.opm.gov/retir...tion/creditable-service/)

I would assume it meets the Bailey decision statement --> "for each retirement plan if the retiree has five or more years of creditable service as of August 12, 1989". (see http://www.dornc.com/tax...individual/benefits.html) -->   Since FERS is a "retirement plan".



Jim Hanrahan  
#29 Posted : Saturday, May 25, 2013 12:05:11 AM(UTC)
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The way I read it, the $36 million is an INCREASE, not the total contribution to the retirement fund next year.

Retirees eligible for the Bailey Decision exemption are right to follow this. That is one of the reasons for starting this topic. However, from the information I have seen so far... the impact will be limited to the sales tax base broadening.

I have not been able to get information specifically if the Bailey Decision exemption would be impacted. And I wrote to both a NC Senator and House representative that are outspoken on NC Tax Reform. Alas, no response. There is no mention of it in the actual House bill, so I don't believe that bill changes Bailey exemption.
TotallyRetired  
#30 Posted : Saturday, May 25, 2013 9:18:02 PM(UTC)

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I haven't tracked down a link on the status of the NC retirement fund.

Apparently, the unfunded liabilities for some State pension funds is not reliable, as the calculation includes unattainable returns on investment such as 18%.

I have no reason to believe that NC unfunded pension liabilities are based on investment returns like this, but just don't know the status right now.Semi-Retired2013-05-26 05:25:33
Jim Hanrahan  
#31 Posted : Monday, June 3, 2013 1:27:31 AM(UTC)
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This week the NC Senate released their version of NC tax reform.
In fact, there are two competing Senate plans.
1) Sens. Bob Rucho and Bill Rabon, Senate Bill 677 (correction should be 669)
2) Sens. Dan Clodfelter and Fletcher Hartsell, Senate Bill 394

Link to article

3) And the House Bill 998, previously discussed

Sales Tax

The current state sales tax is 4.75 percent, plus 2 percent (or more) by the local governments. The typcial total sales tax rate is 6.75 percent.

All three plans lower the sales tax rate, but expand the base by applying it to more services.

1) The Rucho plan would raise the state's portion to 5 percent while lowering the local portion to 1.5 percent. The plan expands it to the most services and applies sales tax to prescription drugs, which are not currently taxed. It also raises the tax on groceries from 2 percent to the full 6.5 percent.

2) The Clodfelter plan would lower the state's portion to 4.5 percent, lowering the overall rate to 6.5 percent also. The plan does not change the sales tax on prescriptions or groceries.

3) The House plan would keep the state portion of sales tax at 4.75 percent but would lower the local portion by 0.1 percent. And expands it to the least services. The plan does not change the sales tax on prescriptions or groceries.

Other notes:
The Rucho plan (1) would remove tax exemptions for nonprofits and charities. It also would charge state income tax on Social Security benefits that are subject to federal taxes. That most often occurs when a retiree has multiple sources of income (not just SS).EngineerJim2013-06-03 11:54:08
Jim Hanrahan  
#32 Posted : Monday, June 3, 2013 3:05:55 AM(UTC)
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I started reading NC Senate bill 394 (2) and it specifically keeps the Bailey exemption in the code (105-153.5).
Link to Bill 394
(5) The amount received during the taxable year from one or more State, local, or federal government retirement plans to the extent the amount is exempt from tax under this Part pursuant to a court order in settlement of any of the following cases:

a. Bailey v. State, 92 CVS 10221, 94 CVS 6904, 95 CVS 6625, 95 CVS 47 8230
Skippy1134  
#33 Posted : Monday, June 3, 2013 3:10:31 AM(UTC)

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Thanks for the update. I do wish they would leave it alone!! :-)
Jim Hanrahan  
#34 Posted : Monday, June 3, 2013 3:27:44 AM(UTC)
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My web search for the other Senate Bill 677 only shows corporate tax reform, not individual?
Link to Bill 677v1

EDIT: This might be the one for Individual Income tax:
Link to Senate Bill 669
EngineerJim2013-06-03 11:57:46
Jim Hanrahan  
#35 Posted : Tuesday, June 4, 2013 1:34:42 AM(UTC)
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House bill 998 was amended by a vote on Tuesday.
It removed the proposed $25,000 cap on deducting mortgage interest and charitable deductions.
It also allows taxpayers to continue deducting their property taxes.

IMO, the $25,000 cap was high enough, but I agree that property taxes should remain as a tax deduction so that was a good change. At today's mortgage rate of 4.0%, that would be a 30 year loan of $650,000.

Here is a link to the NC bill. The amended bill is H998-PCS30566-RBx-25
Link H998 amendedEngineerJim2013-06-05 09:57:03
Jim Hanrahan  
#36 Posted : Wednesday, June 5, 2013 10:37:20 PM(UTC)
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On Wednesday, the NC House decided to go back to the original Bill 998 that caps the deduction for mortgage interest and charitible contributions at $25,000. It also does not allow the deduction for property taxes.

Link to article

The amendment was done in the Finance Committe (by vote), but the objection and reversal occurred in the Appropriations Committee.

I am OK with the $25,000 limit (see my mortgage interest est in the previous post). But I would prefer to see property taxes allowed as a deduction.
TotallyRetired  
#37 Posted : Wednesday, June 5, 2013 10:55:08 PM(UTC)

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Are you thinking that if the deduction for property taxes is eliminated that this will partially offset the tax savings available through the Bailey decision?

Jim Hanrahan  
#38 Posted : Thursday, June 6, 2013 1:07:38 AM(UTC)
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Semi-Retired wrote:
Are you thinking that if the deduction for property taxes is eliminated that this will partially offset the tax savings available through the Bailey decision?

It depends on how much other income you have besides the exempted federal pension/annuity/TSP/Social Security. If you have $1,000 in dividends/interest in a normal account, then it won't matter. If you have rental income, large dividends and captial gains in a normal account, then the property tax deduction might help you have more itemized deductions than the new standard deduction. That will reduce the tax on the "other" income.

But more importantly, I agree with the federal tax system that allows an itemized deduction for property taxes. So I would like all states to allow it also. And that property tax is being paid to the state/county anyway, so why ask for income tax on the money being used to pay the property tax?
TotallyRetired  
#39 Posted : Thursday, June 6, 2013 1:44:46 AM(UTC)

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Since everyone's tax situation is different, it is hard to generalize on the importance of the State property tax deduction.

Leasing a nice townhouse on a golf course might make financial sense in some circumstances.
Jim Hanrahan  
#40 Posted : Thursday, June 6, 2013 4:22:21 AM(UTC)
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Yes, a condo or townhouse makes sense in some situations.
I will likely "downsize" and avoid the maintenace headaches when I get older (75?). But for the first 20 years of my retirement I plan to own my own house to have a place for my hobbies and activities.

I am trying to have people post about the NC tax reform in this topic. Especially as it might effect a federal retiree. It is one place I am considering to move when I retire. I like the area and the benefit of the Bailey Decision/settlement is a financial consideration. Same with property taxes, property values, health care, etc. etc.
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