Governor Pat McCrory signed comprehensive tax reform into law on July 23.
“I came to the governor’s office a few short months ago with a sense of urgency and resolve to put North Carolinians back to work,” said McCrory. “I firmly believe that this reform package will prove to be critically important to growing North Carolina’s economy and getting people back to work. This tax reform package puts more money in families’ budgets and will restore confidence for North Carolina businesses. Because of this package, job creators will think about relocating to our great state.
“I would like to once again commend and thank Senate Pro Tempore Phil Berger, Speaker Thom Tillis, Commerce Secretary Sharon Decker, Secretary of Revenue Lyons Gray and my budget Director Art Pope for their hard work in getting this tax deal done. This historic tax reform package is a win-win for our state and the working families who live here.”
This plan provides fiscally responsible tax relief to all North Carolina taxpayers. Income tax rates for all taxpayers will be lowered to a uniform rate of 5.8% in 2014. The corporate tax will be reduced to 6% in 2014, making North Carolina more attractive to job creators.
This tax reform package is fiscally responsible and provides reasonable revenue growth every year to meet the state’s budget needs. Since tax reform is expected to grow the state’s economy and bolster the tax base, further rate reductions could only be triggered by revenue growth in 2016 and 2017 so as to ensure that the state has adequate resources to provide needed services.
North Carolina Tax Reform At a Glance:
- The plan is uniform for all North Carolinians across the board.
- It broadens the tax base, lowers income tax rates and reduces taxes for North Carolina working families.
- It is also fiscally responsible and ensures appropriate revenue for state government services.
Personal Income Tax:
- Reduces and simplifies the 3-tiered state personal income tax from the current maximum rate of 7.75% and minimum rate of 6% to 5.8% in 2014 and 5.75% in 2015.
- Increases the standard deduction for all taxpayers, applied to the:
- First $15,000 of income for those married filing jointly;
- First $12,000 of income for heads of household;
- First $7,500 of income for single filers.
- Retains the state child tax credit and increases it for families making less than $40,000.
- Offers a $20,000 combined maximum deduction for mortgage interest and property taxes.
- Makes charitable contributions fully deductible.
- Protects all Social Security income from state taxes.
Corporate Income Tax:
- Reduces the corporate income tax from 6.9% to 6% in 2014 and then to 5% in 2015, a 29% rate reduction.
- If the state meets revenue targets (i.e. if there is additional tax revenue growth due to a growing economy), the corporate income tax will drop to 4% in 2016 and 3% in 2017.
Other Highlights:
- Caps the state gas tax;
- Eliminates North Carolina’s death tax;
- Preserves the sales tax refund for nonprofits.