Myrtle Beach Area Retirement Income Taxes
(South Carolina and North Carolina Retirement Income Taxes)
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. Beginning with the first year you receive qualified retirement income and until you reach age 65, you can take a deduction of up to $3,000. You can take this deduction for income received from any qualified retirement plan, such as IRAs, government pensions, Keogh plans and private sector pensions. If both spouses receive retirement income, each spouse is entitled to an individual deduction.
. All residents at age 65 are eligible for a deduction of up to $15,000 from income, regardless of the source. The $15,000 deduction must be offset by any other retirement deduction that is claimed. A surviving spouse may continue to take a retirement deduction on behalf of the deceased spouse.
. Income received from National Guard or armed forces reserve pay for the customary 39 days of annual training and weekend drill is exempt from tax.
. Disability income from a permanent and total disability is deductible.
. South Carolina does not tax Social Security benefits or railroad retirement.
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NC Retirement Benefits Deduction
. Retirement benefits are amounts paid by an employer to a former employee or beneficiary after the employment ends as required under a written retirement plan. Retirement benefits also include amounts you received from an individual retirement account or from an individual retirement annuity (IRA). North Carolina does not tax all of your retirement.
. If you received retirement benefits as a former employee of the State of North Carolina or any of its local governments or as a former employee of the federal government and you did not have five years of service with the government as of August 12, 1989, you may deduct the amount included in federal taxable income or $4,000, whichever is less. This deduction also applies to retirement benefits paid to former teachers and state employees of other states and their political subdivisions regardless of the five year service date. If you are married filing jointly and both you and your spouse received federal, state, or local government retirement benefits, you may each deduct up to a maximum of $4,000 for a total of $8,000. NOTE: If you worked for the federal government for more then five years since August 12, 1989 read the Bailey Decision below
. If your federal taxable income includes retirement benefits from a private retirement plan, you may be able to deduct up to $2,000. If you received retirement benefits from more than one private retirement plan, you will not get a separate $2,000 deduction for each distribution. You may only deduct the total amount included in federal taxable income or $2,000, whichever is less. If you received both government and private retirement benefits, your maximum deduction is the total amount included in federal taxable income or $4,000, whichever is less.
. An individual is not required to have ceased employment to qualify for the $2,000 deduction for distributions from an individual retirement account or an individual retirement annuity.
. If your employer has a structure change and you receive a retirement distribution but do not cease employment with that employer, you do not qualify for the retirement deduction. For example, if company A merged with company B and you continue to work with the merged company, you may not claim a retirement deduction on your State return because you never ceased employment.
. The deduction for retirement benefits is allowed only to the extent the benefits are included in federal taxable income. If you elect to roll-over distributions from your retirement plan, you may not take a deduction on your North Carolina return because the distributions are not included in your federal taxable income.
. If you included retirement benefits in federal taxable income, complete the Retirement Benefits Worksheet in the instructions for Form D-400. Enter the result on the applicable line on page 3 of Form D-400. The deduction will reduce your North Carolina taxable income. Include your 1099Rs with your North Carolina tax return when claiming this deduction.
Bailey Decision Concerning Federal, State and Local Retirement Benefits
As a result of the North Carolina Supreme Court's decision in Bailey v. State of North Carolina, North Carolina may not tax certain retirement benefits received by retirees of the State of North Carolina and its local government or by the United States government retirees (including military) for each retirement plan if the retiree has five or more years of creditable service as of August 12, 1989. The exclusion also applies to retirement benefits received from the State's 401 (k) and 457 plans if the retiree had contributed or contracted to contribute to the plan prior to August 12, 1989. The exclusion does not apply to local government 457 plans, 403(b) annuity plans, or to retirement benefits paid to former teachers and state employees of other states and their political subdivisions. You can view the list of qualified plans in the North Carolina Department of Revenue Individual Income Tax Bulletins. A retiree entitled to exclude retirement benefits in arriving at North Carolina taxable income should claim a deduction on line 44 of the D-400 for the amount of excludable retirement benefits included in federal taxable income. A copy of Form 1099-R or W-2 received from the payer must be attached to the return to support the deduction.
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Note:
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The “special separation allowance” paid to retired law enforcement officers pursuant to G.S. 143-166.41 and reported on Form W-2 does not qualify for exclusion under Bailey. However, the special separation allowance is subject to the $4,000 retirement benefits deduction.
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Distributions from most types of retirement plans may be rolled over into another retirement plan or into an IRA. Because rollover distributions lose their character upon rollover, all distributions from a qualifying Bailey retirement account in which the employee / retiree was "vested" as of August 12, 1989, are exempt from State income tax regardless of the source of the funds contained in the account. Conversely, qualifying tax-exempt Bailey benefits rolled over into another retirement plan lose their character and would not be exempt upon distribution from the other plan unless the plan is a qualifying Bailey retirement account in which the employee was vested as of August 12, 1989. (Rollovers to IRAs will always result in a loss of tax-exempt status since IRAs do not qualify under the Bailey settlement.)
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Read more about Taxes In South Carolina and North Carolina
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