It seems likely that all or some of these changes will take effect as soon as 2022, so clients may want to begin alternate tax planning strategies now. The proposal is back in the House, where it awaits a compromise from Senate changes. 1Īdditionally, the state personal income tax child deduction would increase by $500 and eligibility for the deduction would expand. It’s estimated that around 250,000 North Carolina taxpayers would be removed from the tax rolls with the higher standard deduction. One of the bill’s sponsors described the impact as a reduced tax burden of 50 percent for a family of four (married filing jointly) making $38,000 a year, or a 7.1 percent tax decrease for a family making $200,000 per year. The new tax rates would start in the 2022 tax year. The standard deduction would increase to $25,500 for taxpayers married filing jointly and $12,750 for single filers, up from $21,500 and $10,750, respectively. North Carolina’s new personal income tax rate would be 4.99 percent, down from 5.25 percent. On the personal tax side, individuals are set to have their personal income tax rates decrease and the standard deduction amounts increase. It is expected that the number of businesses eligible for JOBS grants is more than double the number of businesses that would have benefited from having full PPP expense deductibility. Grant amounts would be based on 7.5% of the first $250,000 of assistance with a maximum grant of $18,750 and should be automatically distributed by September 30, 2021. The JOBS Program would help state businesses that received COVID-19 assistance from certain programs like PPP, EIDL, the Restaurant Revitalization Fund, and other programs before June 30, 2021. Based on guidance issued last July, we know that PPP expenses are non-deductible at the state level however, the proposal would appropriate around $1 billion in federal funds to the Job Opportunity and Business Savings (JOBS) Grant Program as an alternative to allowing PPP expense deductibility. Instead, franchise tax would be calculated solely on net income.įinally, businesses that took out Paycheck Protection Program (PPP) loans have been eyeing the state legislation for signs that PPP expenses could be deducted. In this case, North Carolina would eliminate two alternate property bases that are currently used to calculate franchise tax. Many states don’t even impose franchise taxes anymore, and of the ones that do, some are already phasing them out. Next, the franchise tax would be simplified. A growing number of other states already have similar SALT Cap workarounds in place, including South Carolina. Under the proposal, partnerships and shareholders would avoid the $10,000 deduction limit on their personal returns that was imposed in the Tax Cuts and Jobs Act by electing annually to instead pay an optional pass-through entity NC tax on their business returns. To help alleviate the tax burden on pass-through entities compared to corporate entities, North Carolina is poised to adopt a new state and local tax (SALT) cap workaround. Several tax experts agree that this measure would help to spur growth and make North Carolina more competitive however, business taxes on pass-through entities would remain. The current rate is already the lowest among states that continue to tax corporate income, and was lowered to 2.5 percent from 6.9 percent in 2019.īeginning in 2024, the corporate income tax rate would begin to phase out over five years, and by 2028, be eliminated entirely. The biggest piece of potential corporate tax reform in North Carolina is phasing out and eventually eliminating the corporate income tax. If passed, North Carolina would join seven other states that don’t tax corporate income. Though Governor Cooper has expressed he will not support the tax cuts, the proposal seems likely to have enough support for a veto override. House Bill 344 has been through both chambers and is likely to be included in the state’s final budget. This summer, North Carolina is facing the prospect of major tax reform for corporate and individual taxpayers. North Carolina Budget Allows PPP Deductions, Reduces Tax Rates, Establishes SALT Workaround Please see our most recent article for the latest updates on this topic:
0 Comments
Leave a Reply. |