North Carolina Tax Changes and Info
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As a result of the North Carolina Supreme Court's decision in Bailey, North Carolina may not tax the retirement benefits received by retirees of the State of North Carolina and its local governments or by United States government retirees (including military) if the retiree had five or more years of creditable service as of August 12, 1989. The exclusion applies to retirement benefits received from certain defined benefit plans such as:
The exclusion also appliles to retirement benefits received from the State's 401(k) and 457 plans if the retiree had contributed or contracted to contribute to the plan prior to August 12, 1989.
As a result of the North Carolina Supreme Court's decision in Faulkenbury , certain disabled retirees (and their beneficiaries and estates) received retroactive benefits from the North Carolina Teachers' and State Employees' Retirement System and the North Carolina Local Government Retirement System. As a result of Bailey , a recipient receiving a direct payment of an award under Faulkenbury may deduct the amount of the payment. The payment should be claimed on line 40 of Form D-400. A recipient electing to roll over all or part of the award into an IRA may not deduct any future distributions from the IRA.
The statute was rewritten to permit a nonresident taxpayer to claim a tax credit for child care and certain employment related expenses and to change the method of calculating the credit for a part-year resident. A nonresident or part-year resident is allowed a prorated credit based on the percentage of the taxpayer's total income that is taxable for North Carolina income tax purposes. A part-year resident previously calculated the credit by only including those expenses paid during the period of residency. (Effective for taxable years beginning on or after January 1, 1998.)
The statute was rewritten to repeal the requirement that the owner of multifamily rental units be a resident of the State to be eligible for the credit for construction of dwelling units for handicapped persons. The rental units must still be located in the State to qualify for the credit. (Effective for taxable years beginning on or after January 1, 1998.)
The statute was rewritten to increase the maximum credit allowable to individuals for making a qualified donation of an interest in real property from $100,000 to $250,000. The requirement to add back the fair market value of the donated property to federal taxable income was repealed. (Effective for taxable years beginning on or after January 1, 1999.)
The statute was rewritten to increase the credit from 2.75% to 7% of the taxpayer's excess charitable contributions. (Effective for taxable years beginning on or after January 1, 1999.)
A tax credit is allowed to a taxpayer who paid health insurance premiums during the taxable year that provided insurance coverage for the taxpayer's dependent children. If the taxpayer's federal adjusted gross income does not exceed 225% of the federal poverty level based on the taxpayer's family size, the allowable credit is $300; otherwise, the allowable credit is $100. To be eligible for the credit, the taxpayer's federal adjusted gross income must not exceed the following amounts for the taxpayer's filing status:
| Filing Status | AGI |
| Single | $80,000 |
| Married filing jointly | $100,000 |
| Married filing separately | $50,000 |
| Head of household | $80,000 |
(Effective for taxable years beginning on or after January 1, 1999.)
A credit is allowed to a taxpayer who pays premiums during the taxable year on a qualified long-term care insurance contract that offers coverage to either the individual, the individual's spouse, or a dependent for whom the individual was allowed to deduct a personal exemption on the individual's tax return for the taxable year. The credit is equal to 15% of the premium costs but may not exceed $350 for each contract for which the credit is claimed. The credit may not exceed the taxpayer's tax for the year reduced by the sum of all other credits allowed. Any unused portion of the credit may not be carried over to subsequent years. A nonresident or part-year resident is allowed a prorated credit based on the percentage of the taxpayer's total income that is taxable for North Carolina income tax purposes. A credit is not allowed for any premiums paid with income that excluded from gross income or that was deducted in arriving at federal taxable income. (Effective for taxable years beginning on or after January 1, 1999.)
The inheritance tax was repealed and replaced with an estate tax and generation-skipping transfer tax. Both of these taxes are pick-up taxes from the federal estate tax return. (Effective for taxable years beginning on or after January 1, 1999.)
G.S. 105-32.2 imposes an estate tax on the estate of a decedent when a federal estate tax is imposed on the estate and the decedent was a resident of North Carolina or owned real or tangible personal property located in the State or intangible personal property that has obtained a tax situs in the State. The North Carolina estate tax equals the maximm credit for state death taxes allowed on the federal return. Provisions are included for prorating the federal credit for state death taxes among North Carolina and other states in which property owned by the decedent was located.
G.S. 105-32.7 imposes a generation-skipping transfer tax if the transfer is subject to federal generation-skipping transfer tax and the original transferor was a resident of North Carolina or, at the time the original transfer, the transfer includes real or tangible personal property located in the State or intangible personal property that has obtained a tax situs in the State. The North Carolina generation-skipping transfer tax equals the the maximm credit for state generation-skipping transfer taxes allowed on the federal return. Provisions are included for prorating the federal credit for state generation-skipping taxes among North Carolina and other states in which property owned by the original transferor was located. The generation-skipping transfer tax return and payment of the tax are due when the federal generation-skipping transfer tax return is due.
For more information, eMail: taxinfo@electrofile.com