The Personal Income rates are changed from the tiered system to a flat rate percentage. Starting in 2014 the state’s income tax rate will be a flat 5.8 percent with an additional reduction in 2015 taking the rate to 5.75 percent.
This is a huge change, as it will affect everyone that pays state income tax. Some might see concern with the small business $50k exemption, but moving to the flat tax will save small business owners taxes too. While this is a great first start, North Carolina has much more to do in the upcoming years to make the state a leader in competitive taxes, remember that both Tennessee and Florida have zero personal income rates and are direct competitors when recruiting business.
Here is an outline of all the specific changes to Personal Income and the fiscal implications of each to the state’s revenue:
- Increases Standard Deduction to $15,000 (MFJ), $7,500 Single, $12,000 HOH
- Allow greater of standard deduction or itemized deduction of mortgage interest, property taxes, capped at $20,000 plus all charitable contributions allowed for Federal tax purposes
- Keeps current Child Credit of $100
- Enhances Child Credit to $125 if AGI is below $40,000
- Eliminate personal exemptions
- Eliminate non-itemizers charitable contribution credit
- Eliminates Severance Wage deduction
- Eliminates most other credits without sunsets
- Eliminate $50k Business Exemption in 2014
North Carolina’s revenue collection from personal income taxes will see a decrease in the following amounts over the next five years:
- 2014 – ($108.3 million)
- 2015 – ($455 million)
- 2016 – ($536.5 million)
- 2017 – ($557.1 million)
- 2018 – ($590.1 million)
