Filing Taxes in North Carolina
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.
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.
Ten Tips for Filing Taxes in North Carolina
Tax season has arrived and the North Carolina Department of Revenue wants to make filing as easy as possible for the citizens of our state. Filing error-free returns is the best way to ensure your tax return is processed quickly. NCDOR offers the following easy tips and recommendations as you prepare your taxes this year.
1. Extended filing date- Individual income taxpayers will have until April 18, 2011, to file returns, extensions and payments normally due on April 15. The extension is to accommodate Emancipation Day, a legal holiday in the District of Columbia. For details on the extension click here.
2. Gather all your income and tax documents before you file- Filing before you receive all W-2s and 1099s often leads to errors that require you to file amended returns once you have the correct information. Employers are required to mail W-2s and other documents by Jan.31.
3. File electronically and request direct deposit for refunds-This is the most convenient, accurate and the fastest way to file your taxes. Electronic filing will identify common math errors and direct deposit to your bank account means you get your money sooner. Some taxpayers may qualify for free or low-cost electronic filing. To find out how to e-file and if you are eligible for low-cost filing click here.
4. File electronic federal and state returns at the same time-Failure to file both returns at the same time could require taxpayers to amend North Carolina returns if the IRS detects any errors with their federal return.
5. Check your address-Every year, thousands of refund checks are returned to the Department of Revenue because of incorrect addresses, and the law forbids the forwarding of those checks. Carefully check the mailing address you provide on your return.
6. Do not file photocopies of tax forms-Use pre-printed or downloaded forms from the department’s website. Photocopies may not scan correctly and could cause delays in processing your return. Taxpayers can request forms online at www.dornc.com/request, by downloading forms at www.dornc.com/downloads/individual.html or by calling 1-877-252-3052.
7. Make checks payable to the N.C. Department of Revenue if you owe state taxes-Some taxpayers mistakenly send checks made out to the Internal Revenue Service for their state taxes. Payments may also be made on-line through our secure website. Just visit www.dornc.com and click on Electronic Services for Individuals.
8. File on time regardless of ability to pay-Make sure you file on-time to avoid the automatic failure-to-file penalty of five percent per month, up to a maximum of 25% of what you owe in state taxes. You are better off filing your taxes by the April 18 deadline and contacting the department at 1-877-252-3052 to arrange a payment plan if you cannot pay all at once.
9. Check to see if you qualify for common credits, deductions or exemptions-You could qualify for popular credits such as the Earned Income Tax Credit both federally and with the state. Check your eligibility here. Some severance pay may also be exempt if you were laid off from your job.
10. Check your eligibility for free or low-cost filing-Taxpayers with low-to moderate- incomes may qualify for free tax preparation through the Volunteer Tax Assistance Program. To locate the nearest VITA site, call 1-800-906-9887 or visit the IRS website. Others may qualify for free or low-cost electronic filing options. Check our website www.dornc.com/electronic/e-file.html for more information.