Each year North Carolina updates its tax code to address changes made to the federal tax code during the previous year. At that time, state policymakers have the opportunity to consider the fiscal and taxpayer impact of these changes on North Carolina’s tax code. Unfortunately, portions of the bill designed to update the tax code could have serious
consequences for working families in North Carolina.
This year, House Bill 82 outlines whether North Carolina will conform and decouple from the federal tax code on several key tax changes primarily passed as part of the fiscal cliff deal in the American Taxpayer Relief Act (ATRA). The primary concern presented in the House Finance committee was the fiscal impact to the state of conforming to federal changes. However, HB 82 conforms to many costly federal provisions and adapts the state tax code to alter provisions that primarily benefit middle- and low-income taxpayers.
Specifically, the reduction of the state EITC from 5% of the federal credit to 4.5% will increase the tax contributions of 19% of the state’s middle and low income taxpayers, earning $41,000 or less. Meanwhile, conforming with the changes to limits on itemized deductions will give 3% of taxpayers — those earning $235,000 and more — a tax cut.