On July 23, 2013 NC Governor Pat McCrory signed the recently passed tax revisions into law. The changes will take effect January 1, 2014 for tax years 2014 and beyond. Here are the highlights of what did and did not change (not an all-inclusive list):
(See separate list for changes to Corporate taxes)
- The current three-tiered tax rate system (6, 7 and 7.75%) is replaced by flat tax rate of 5.8% in 2014 and 5.75% in 2015 and beyond.
- Personal exemptions are eliminated.
- Standard deduction amounts are increased.
- Married taxpayers who file jointly and itemize deductions are limited to a combined mortgage interest and property tax deduction of $ 20,000 on their primary residence (for Single taxpayers the limit is $ 10,000, for Head of Household taxpayers the limit is $ 16,000).
- No change in treatment of charitable contributions for taxpayers who itemize deductions on their federal return but taxpayers using standard deduction lose the tax credit for charitable contributions above the state threshold.
- No change in treatment of “vested” participants in NC-exempt pensions but the (up to) $ 2,000 private retirement income deduction and (up to) $ 4,000 government retirement deductions are eliminated.
- Social Security benefits remain untaxed in North Carolina.
- The (up to) $ 50,000 per taxpayer deduction for net income from self-employment is eliminated.
- Changes to Child Tax Credit depending on income – some credits are higher, some remain the same and some are eliminated.
- Tax credits for child care, permanent and total disability, education expenses and property taxes paid on farm machinery are eliminated.
- Deduction for making contributions to the NC 529 plan is eliminated.
- Energy Star tax credits are eliminated.
- Earned Income Tax Credit is eliminated (it was scheduled to expire on December 31, 2013 anyway).
- Estate tax is eliminated.
- No change to state sales tax rate.
- No change to how food is taxed (sales tax) although some specialized bakery items lose their preferred tax rate status effective July 1, 2014.
- Prescription drugs remain exempt from sales tax.
- Movie tickets and other amusements now subject to full sales tax rate instead of reduced privilege tax rate.
- Tax rate levied on electricity and piped natural gas increases from 3% to 7%.
- Changes made to various other sales tax categories (too numerous to list here but are to very specific sales).
- Back-to-school sales tax “holiday” is eliminated.
- State gasoline tax capped to 37.5 cents through June 30, 2015.
If you have questions about any of these changes, please contact our office.