The North Carolina Senate this week approved a bill that includes the biggest tax cuts since the 2013 tax overhaul package was approved. Beginning in tax year 2018, the state’s first flat income tax rate would be capped at 5.35 percent. The standard deduction, the amount on which no tax is paid, would go up from $17,500 to $20,000 for couples filing jointly. For single filers, the amount goes up from $8,750 to $10,000.
For businesses, the bill reduces the corporate tax rate to 2.5 percent by 2019. S Corp holders with businesses worth more than $133,000 would receive a tax cut due to the way franchise taxes are calculated. But businesses worth less would end up paying more as a result of the changes in calculations.
A change referred to as “market-based sourcing” could have some businesses paying more. Multi-state corporations based in North Carolina where employees and capital investments are located would end up paying less tax. Out-of-state corporations would pay more based on employees and capital investments in North Carolina.
OTHER HIGHLIGHTS OF THE BILL:
• Deductions for mortgage interest and property tax will increase to $22,000 for married couples..For single filers the deduction is $10,000.
• Currently, families making up to $40,000 per year get a child tax credit of $125 per child and those making up to $100,000 can claim $100 per child. Under the new bill the credit becomes a deduction with families whose income is under $40,000 getting $2,500 per child and families earning up to $60,000 get $2,000 per child. Smaller deductions are given to families earning up to $120,000 per year.
• The cost of the new tax plan to the state? $324 million in the upcoming fiscal year, $710 million in 2018-19 and $775 in 2019-20. Budget surpluses in the last two years almost equal these projected costs. Over a two-year period, it amounts to a billion dollars in revenue.