Growing Without Rain

News and Views about Taxes

2009 NC Individual Income Tax Law Changes

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As usual, North Carolina made changes to the NC personal income tax for 2009, and there were a couple of changes at the federal level that affect state taxpayers as well. Most of these changes affect only a handful of taxpayers, but some have a potentially significant impact:

1. North Carolina has imposed a surtax on high-income taxpayers. The surtax is due if North Carolina
taxable income is greater than the amount shown below for the taxpayer’s filing status:

  • Married filing jointly/qualifying widow(er) $ 100,000
  • Head of household $ 80,000
  • Single $ 60,000
  • Married filing separately $ 50,000
  • The surtax is 2% of the tax due when NC taxable income exceeds the specified amounts, and rises to 3% of the tax due if NC taxable income is greater than the amount shown below for the taxpayer’s filing status:

  • Married filing jointly/qualifying widow(er) $ 250,000
  • Head of household $200,000
  • Single $150,000
  • Married filing separately $125,000
  • For example, if you are MFJ with NC taxable income of $125,000, your regular tax due would be $8725, and the surtax due would be 2% of $8725, or $175 (OK, $174.50, but we always round to the nearest dollar). If you are single with NC taxable income of $200,000, your regular tax due would be $14,923, and the surtax would be 3% of that amount, or $448. The surtax is calculated on line 15 of NC D-400.

    Don’t ask me why the income limits are set as they are – ask your state legislator!

    2. Under the federal Military Spouses Residency Relief Act, the income earned for services performed in North Carolina by the spouse of a service member who is legally domiciled in a state other than North Carolina is exempt from North Carolina income tax if (1) the service member is present in North Carolina solely in compliance with military orders; (2) the spouse is in North Carolina solely to be with the service member; and (3) the spouse is domiciled in the same state as the service member. All three conditions must be met to qualify for exemption. A spouse who meets these conditions is required to file a NC tax return in order to receive a refund of taxes withheld, and should also file a new NC-4 with his/her employer certifying that the spouse is exempt from NC withholding. Note that this exemption applies only to income earned by the spouse; NC-source income from other sources (e.g. NC rental property, gambling winnings, etc.) is still taxable.

    3. If you take the standard deduction, and claim the additional deduction for real estate taxes paid, or if you take the new sales tax deduction for purchase of a new vehicle, NC requires that you add the amount back to your federal taxable income for NC tax purposes.

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    Written by nctaxpro

    January 18, 2010 at 11:16 am

    Posted in North Carolina, Taxes

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