NC and pension taxation

[Catherine]

I have a client who retired to North Carolina.  She just started taking her Massachusetts Teacher's Retirement pension - and I can't find if this is taxable in NC or not.  It was income excluded from federal taxation but *included* for MA taxation when earned and is therefore tax-exempt in Massachusetts when paid out.  There's a bunch of NC info on the "Bailey settlement" that seems to be the same but only refers specifically to NC-earned pensions.  I can't find any provision for reciprocity (which only means I can't find it - because neither can I find anything stating yes, this IS subject to tax in NC).

Can anyone point to where I can look this up?  Or does anyone know off the top of their head?

Thanks!

[Abby Normal]

Why is it excluded from federal taxation?

[Catherine]

44 minutes ago, Abby Normal said:

Why is it excluded from federal taxation?

When it was earned it was funds excluded from federal taxation - just like a 401k contribution.  But at that same time, upon earning, it WAS taxed in Massachusetts.  So when it is received after retirement, it is taxable for the feds but NOT taxable by Massachusetts.  Except now she lives in NC.  Which seemingly has the same deal for in-state pensions, but I can find no information on the treatment of pensions from OTHER states.

[Catherine]

I found it.  

NC Bailey Decision info

[Abby Normal]

Ah, ok. Your original post stated just the opposite.

[Abby Normal]

Bummer that they paid to tax to MA and now have to pay again to NC, but I understand states taxing retirement contributions when earned.

[Catherine]

1 hour ago, Abby Normal said:

Ah, ok. Your original post stated just the opposite.

Re-read the second sentence.  Past tense "was" and it was excluded from federal tax when earned like 401k contributions.  But taxed as income in Mass in the year earned.  If they stayed in Mass, there would be no state tax on that pension but there would be federal.  Since she moved to NC, she gets to pay federal tax *and* state tax to NC.  Ah, well.  With the lower cost of living, she's still better off down there.

[JohnH]

Sorry, Catherine, I just now saw your post.  But I see you found the answer.  The Bailey decision more--or-less settled the issue.  Eventually, even retired NC state employees will also pay state income tax on their pensions after all the "grandfathered" employees retire and then die off.  Right now we are in the midst of a long changeover process.  But you are correct.  Your client will probably have a lower cost of living.  Her state income tax may be less than the savings on her property taxes alone.  Plus, there's tangible value derived simply by living in the "Variety Vacationland."

[Abby Normal]

Clarity. I thought you were saying it was excluded when paid out, not when earned. I was in tax return mode.

[Catherine]

5 minutes ago, Abby Normal said:

Clarity. I thought you were saying it was excluded when paid out, not when earned. I was in tax return mode.

Both!  Depending on which one is being looked at (fed or state).  Which makes it way more confusing especially on a quick read while we're all trying to finish of the last stragglers.