Sept. 9, 2013: For those clients living in North Carolina, 2014 will bring a host of income tax changes. The Tax Simplification and Reduction Act of 2013 was signed into law July 24, 2013 and takes effect January 2014.
1. Individual Tax Rates
- The current graduated income tax rates in NC of 6%, 7% and 7.75% will be replaced with a flat tax of 5.8% during 2014 and 5.75% for 2015 and beyond.
- Eliminates the personal exemption
- Eliminates the child tax credit for those earning over $100,000; retained at $100 per child for earnings between $40,000 and $100,000; increased to $125 per child for earnings < $40,000.
- Eliminates both the exclusion of $2,000 for qualified private pension income and $4,000 for federal/state/local pension income. However, NC does retain the “Bailey” settlement exemption for taxation of retirement benefits. This settlement specifically applies to Federal/NC retirees who had 5+ years of creditable service as of 8/12/1989.
- Raises the standard deduction to $15,000 for Joint; $12,000 for Head of Household and $7,500 for Single filers.
- Limits itemized deductions for personal residence interest and property taxes to $20,000 for all filers. Retains unlimited charitable deductions.
- Retains the deduction for Social Security benefits.
2. Other NC Tax-related Changes
- Eliminates the sales tax holiday weekend in August and the Energy Star appliance sales tax holiday in November.
- Eliminates the NC estate tax effective for estates of decedents dying on and after January 1, 2013.
- Extends the NC Sales tax to certain service contracts, entertainment and entry tickets to certain attractions.
- Corporate income tax rate reductions from current 6.9% to 6% in 2014, 5% in 2015 and further reductions if the state meets certain revenue targets in future years.
Most NC filers will begin to see differences in the state’s taxation beginning January 1, 2014. While this is by no means an exhaustive list, it should help to highlight some of the changes which may apply to your situation so that you can begin to plan for and avoid surprises at tax time.
The information contained in this announcement is informational only and should not be considered advice or a recommendation to resolve your particular tax questions or issue. Please consult your financial advisor or tax professional if you have any questions regarding how these changes may impact your personal situation.