Active-duty and reserve pay
Military pay is taxed, except combat zone or hazardous duty pay excluded from federal income.
An E-5 with over 6 years of service earns $49,320 a year in basic pay, and an O-3 with over 6 years $92,844. In North Carolina, that basic pay is generally part of state taxable income, apart from the exemptions above. Housing and food allowances are never taxed by any state.
Military retired pay
Military retired pay is exempt for members with at least 20 years of service or a medical retirement.
Your state of legal residence decides
Military pay is taxed by your state of legal residence, usually the state you lived in when you joined or one you later adopted by changing your records, not by the state where you are stationed. This comes from the Servicemembers Civil Relief Act. Spouses can choose to use the member's state of legal residence for their own income too.
See your total pay with state tax
Questions
Does North Carolina tax military pay?
North Carolina taxes most military pay, with some exemptions. Military pay is taxed, except combat zone or hazardous duty pay excluded from federal income.
Does North Carolina tax military retirement pay?
Military retired pay is exempt for members with at least 20 years of service or a medical retirement.
Is BAH taxed in North Carolina?
No. BAH and BAS are not taxable income for federal or state tax in any state.
Which state taxes me if I am stationed in North Carolina?
Under the Servicemembers Civil Relief Act, your military pay is taxed only by your state of legal residence, not the state where you are stationed. If North Carolina is not your legal residence, North Carolina does not tax your military pay.