For NC folks - Bailey ruling question

[FEDUKE404]

I recently fielded a telephone call from a friend who is going the TurboTax route.

Apparently their Q&A is asking something about "Bailey benefits" included on a Form W2.

For the life of me, I cannot figure out how such a scenario could exist. Everything I have ever seen that is truly "Bailey" (State of NC retirement/401k or local government retirement or military/civil service retirement) is reported on a Form 1099-R.

There is a scenario where certain retired NC law enforcement officers can receive a Special Separation Allowance (function of total wages received prior to retirement) up to age 62, and those "wages" are reported on a W2. The actual "NC retirement income" still comes from a separate agency and is reported on a Form 1099-R. But several years ago the NCDOR stated in no uncertain terms that the SSA cannot be excluded under the Bailey rules, although they did toss a small bone out and said the supplement could be deemed "government retirement" and thus subject to having a taxpayer exclude up to a total of $4k funds. Of course, that dollar amount would be the top to include any other allowable "retirement" exclusion the state (currently) offers. That all goes away starting with 2014 tax year, when only "true" Bailey retirement income will remain as an excludable amount.

Anyway....back to my original question. Has anyone seen a W2 where there was legitimately any amount on it that could be excluded under Bailey??

Maybe the Intuit folks are just confused?

Thanks!

FE

[JohnH]

Just in case you don't have this, here is the list of everything which qualifies under Bailey (provided the service requirement is met). Scroll down to page 25 to begin reading.

http://dornc.com/practitioner/individual/bulletins/income_bulletins_09-10.pdf#page=31

Almost everything on the list is has "Pension" or "Retirement" in its name... except the list contains this ---> "North Carolina Deferred Compensation Plan".

I know some Deferred Compensation plans issue a W-2 to retirees, but I don't know under what circumstances. But in any event, this MAY be a situation in which a Bailey retiree gets a W-2.

[Koss]

Form W-2

Sometimes disability benefits are reported on Form W-2--particularly short-term disability benefits.

In the link that JohnH provided, the North Carolina Disability Income Plan is among the sources of income that may qualify for exclusion under Bailey, if the taxpayer was vested before August 12, 1989.

Here's a link that may contain the discussion over at TurboTax that FEDUKE's friend is referring to:

https://ttlc.intuit.com/questions/2239340-entered-bailey-settlement-but-total-is-doubled-on-state-return

The answer, on the surface, appears to be correct. It says that TurboTax has a field in which to identify a "Bailey Pension reported on W-2," but it also says that this is a rare situation.

BMK

[FEDUKE404]

Responses

Koss found the same Intuit link I did...comment by them is worthy of note.

I'm not sure the "NC Deferred Compensation Plan" or whatever it was once called even exists. I do have NC government retiree clients who put funds into a NC account similar to that, back in the 80s, and they definitely now receive Forms 1099-R with the required "Bailey verbiage" shown on the face of the Form 1099-R. Once the NC 401k plan (now managed by Prudential??) came into play for all state employees, the Deferred Comp plan kinda fell by the wayside and may have been absorbed by some other financial institution.

I was aware of the list provided by JohnH, and I was also around when the original Bailey Emory Patton settlement arrived, and had many clients who had to fight through the tax implications of the significant refunds that were returned to them after the US Supreme Court put an end to the "creative accounting" used by then NC Attorney General Mike Easley. Yes, there were many agencies involved.

As for my original question, the W2 answer must lie out there in some strange scenarios (possibly disability ?) where legitimate Bailey payments are made from within a W2.

I will just process those tax returns along with the Schedules R that I encounter. . .

Thanks to all.

FE