Updated October 29, 2026. Quick answer: Only if you were vested by 1989. The 2025 D-401 instructions say North Carolina may not tax benefits from the Federal Employees’ Retirement System or the United States Civil Service Retirement System for a retiree with “five or more years of creditable service as of August 12, 1989”.
What North Carolina does with a FERS or CSRS annuity
| Question | What the North Carolina documents say |
|---|---|
| What the source says | North Carolina may not tax benefits from the Federal Employees’ Retirement System or the United States Civil Service Retirement System five or more years of creditable service as of August 12, 1989 (the Bailey settlement), claimed as a deduction on Form D-400 Schedule S, Line 20. |
| Amount or limit | The full amount of qualifying retirement benefits included in federal adjusted gross income is deducted on Schedule S, Line 20; no dollar cap is printed. |
| Age or other test | No age test is printed; the test is five or more years of creditable service as of August 12, 1989. |
| State rate printed | For tax year 2025 the individual income tax rate is 4.25%; no other rate is printed in the state documents cited here. |
| Change for 2026 | No 2026 change is printed in the state documents cited here. |
In the North Carolina documents’ own words
- “or the United States Civil Service Retirement System” (2025 D-401 Individual Income Tax Instructions)
- “the individual income tax rate is 4.25%” (2025 D-401 Individual Income Tax Instructions)
- “federal retirement plans may or may not be excluded” (2025 D-401 Individual Income Tax Instructions)
How this differs from other pensions in North Carolina
The instructions single out vested North Carolina state and local retirees and United States government retirees for the Bailey exclusion, while Line 19 separately excludes Social Security and railroad retirement benefits; the state documents cited here do not print a rule for private pensions, so a federal retiree who missed the 1989 service test would be taxed like other retirees, which the documents do not state in so many words. See also Does North Carolina tax pensions? and military retirement pay.
FERS, CSRS and your TSP
The state documents cited here do not address TSP withdrawals; they say only that benefits from other state, local, and federal retirement plans may or may not be excluded depending on rulings in the Bailey case. For the Thrift Savings Plan itself, see Does North Carolina tax TSP withdrawals? and the TSP calculator.
What the North Carolina documents leave open
The instructions do not say how a federal retiree who missed the 1989 service test is taxed, so that case is an inference from silence, not a printed rule. The General Statutes text was not read, and the instructions do not address TSP withdrawals or any 2026 change.
Common mistakes
- Assuming every federal retiree qualifies. The Bailey deduction turns on creditable service as of August 12, 1989, not on retirement date.
- Leaving the deduction off Schedule S. It is claimed on Form D-400 Schedule S, Line 20.
Related: Does North Carolina tax pensions?, North Carolina military retirement pay, North Carolina retirement deduction line by line, and FERS, TSP and Social Security sequencing.
Find the right next step for your situation
About how much do you have invested? Pick the range that fits; your next step appears immediately below.
Compare adviser services and total fees
For U.S. investors with $250,000 or more in investable assets. WiserAdvisor is an independent service matching you with 2 to 3 vetted advisers. Its form asks for your ZIP code and answers to a few questions; a match is not guaranteed.
Free to request, with no obligation to hire. By submitting, you consent to calls, texts and emails from WiserAdvisor and up to three advisers. Advisers pay for introductions.
Clear Money Guide may earn a referral payment for a qualifying completed form. An introduction is not a Clear Money Guide recommendation.
Opens on WiserAdvisor’s site in a new tab.
Explore optional adviser matching
Considering financial advice? Request an adviser introduction with no obligation to hire.
The form is run by Kapitalwise, our advisor-matching partner. Requesting an introduction is free. Submitting the form shares your contact details with advisers, so expect calls and texts. Advisers pay for introductions. Clear Money Guide may earn a referral payment for a qualifying submitted form, whether or not you hire anyone. A match is not guaranteed.
The Kapitalwise form opens here; you stay on this page.
What happens when you press the button
It asks about nine questions: age, investable assets, location; then your name, email and phone number, and verifies the phone by text. Nothing loads and nothing reaches Kapitalwise until you press the button.
Prefer flat-fee or hourly pricing instead? Compare ranges here.
Answer againSources
- 2025 D-401 Individual Income Tax Instructions: https://www.ncdor.gov/2025-d-401-individual-income-tax-instructions/open
- 2025 D-400 Schedule S North Carolina Supplemental Schedule: https://www.ncdor.gov/2025-d-400-schedule-s-handwritten-version/open
Read from the state documents linked above on October 29, 2026. General information, not tax advice.