NC taxation of non resident pension

Forum|Forum|1 year ago
August 22, 2024
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I own property in North Carolina, but I am a non-resident. None of my retirement (IRAs, etc.) income comes from North Carolina sources. But it seems that the only retirement income I can shield from NC taxation is that which comes under the Bailey Settlement. Which makes it appear that NC can tax the retirement income of a non-resident with no retirement income from NC sources. Is that true? When I say "retirement income", I am speaking of retirement benefits, not income from the property I own in North Carolina.

NCPERSON1

@Peter56 - I take it you do not live in NC and I will assume the NC property is income producing property.

The ONLY income you will report to NC is the income on the property - nothing else. (if the property is not income producing, there is no income to report to NC and thus no tax to NC). That would be the only NC sourced income.

Since you are not living in NC, it will not tax any of your retirement income.

You will report ALL your income to the state you live in and it will give you a credit for the tax liability in NC, if there is any, so that you are not paying tax on the same dollar to both states. (the credit is the LOWER of what you pay NC or what the tax would have been in your state had there been nothing paid to NC).

does that help?

Peter56Author

I agree, however: in turbotax, I have to complete the Retirement Benefits Worksheet (it is a worksheet I keep for my records, but it affects my NC taxable income) on which I list my spouse's and my retirement benefits (pension, IRAs, etc.). The only types of retirement benefits I can exclude from NC income on that worksheet are those defined by in the Bailey Settlement. Basically, for my spouse and me, that is SS and Federal retirement benefits. All else affects the ratio of NC-related income to total income, and hence the NC taxable income. I talked with Turbotax and they told me that I should override the excludible lines and put in that which is not NC related retirement income. That is fine with me, and I hope it is fine with NC department of revenue. I am just wondering whether NC thinks it can tax my Fidelity IRA distribution that is not in any way related to NC.

NCPERSON1

@Peter56 - there should be a screen in the NC module that is called "NC income allocation". Your federal income is in the left column and the NC income is in the right column. You should entering ZERO for everything, except the rental income on the property you own which is sourced NC income.

So for the NC column, the pension line box should be zero, the SS box should be zero, etc.

I just ran a test using NC as my non-residential state and SC as my residential state. It worked perfectly!

How much rental income is there? There is a $25,500 standard deduction in NC (filing joint), so if your rental income is less than that, it is likely there there may be little to no tax due to NC. But if there is, that should show as a credit on the other state's tax return. (if it is SC, look on line 13 of the SC income tax return).

why do you think the only pension you can exclude is related to Bailey? none of the other pensions are NC sourced income so those are excluded as well, as is SS.

does that help?

SteamTrain

Employee

[Later edited based on some calculation steps I inverted accidentally]

One thing that confuses some folks is how NC (and many other states) do the non-resident tax calculations. The NC forms will first apply the deductions (Std/Itemized) to ALL your income, as-if you are actually an NC resident. Then after those appropriate deductions, the form will then ratio-down the taxable income for you, as a non-resident, based on what sub-portion was earned/received from NC sources. Thus, NC starts with your full Federal income, and then you need to tell the software (during the NC interview) what lower amount actually came from NC sources.

Very Crudely...As an NC nonresident, if you had 50,000 of gross income, and $500 NC-sourced income...NC first multiplies the gross NC-taxable income (after deductions) by 0.01 (i.e 500/50,000) to ratio-down your non-resident NC-taxable income, and the final tax is applied to that lower amount.

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

NCPERSON1

@Peter56 - to add to @SteamTrain's comments, here is the non-resident form.. You will list all your income in column A, but only the NC sourced income in column B, which in your case would ONLY be the property income. (turbo tax will walk you through all this).

then the percentage is calculated at the bottom on Line 24: that is the percent of your total income that is taxed in NC, which would represent the rental income only.

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