Updated October 4, 2026. Quick answer: No, for most retirees. G.S. 105-153.5 deducts “Retirement pay for service in the uniformed services of the United States” in full for a retiree who served at least 20 years or was medically retired, and the statute prints no dollar cap or age.
How North Carolina treats military retired pay
| Item | What the documents say |
|---|---|
| Treatment | Full deduction of uniformed-services retirement pay; no dollar cap printed |
| Who qualifies | A retired member who served at least 20 years in the uniformed services, or who was medically retired under 10 U.S.C. Chapter 61; severance pay is excluded |
| Survivor Benefit Plan | Payments of a plan defined in 10 U.S.C. section 1447 to a beneficiary of an eligible retired member are deductible too |
| Rate on other income | 3.99% for taxable years after 2025 (G.S. 105-153.7), subject to a revenue-trigger reduction in subsection (a1) |
A $30,000 example
A qualifying retiree with $30,000 of retired pay deducts the full $30,000, so none of that pay is left to tax.
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What changes in 2026
The statute prints 3.99% as the rate after 2025 (4.25% for 2025), and no change to the military retirement deduction.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal side in Publication 3, Armed Forces’ Tax Guide.
Related: whether North Carolina taxes pensions, how North Carolina taxes retirement income, military retirement pay by state, and the military retirement calculator.
Sources
- G.S. 105-153.5 Modifications to adjusted gross income: https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_105/GS_105-153.5.html
- G.S. 105-153.7 Individual income tax imposed: https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_105/GS_105-153.7.html
Sources: the primary documents linked above, read on October 4, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.