N.C. tax reform to bolster, build

Emily M. Hobbs Staff Writer

December 31, 2013

Earners are expected to keep more in their wallets over the next year, thanks to tax reform laws going into effect on Jan. 1, 2014. Politicians are touting lower taxes for 2014 as a chance to bring in businesses, and also as a boon to local economies, by providing more for constituents to spend during the year.

“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,” said Gov. Pat McCrory in a press release. “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.”

Instead of the previous multi-tiered system, tax payers are finding that the state is using a flat rate across the board. Before, if persons made more, they paid more in taxes, but now the tax rate is supposed to be an even state income tax rate, a rate which is scheduled to fall even farther in 2015, to 5.7 percent. Under the state’s new system, all taxpayers pay the same 5.8 percent income tax rate — ensuring that those with the largest incomes will benefit the most. Those who have been paying at the highest 7.75 percent rate will see their total income tax burden reduced by a quarter, while low-income taxpayers paying 6 percent will get a more modest cut.

“I don’t think this reform will impact the economy in some cases, but it does help lower the tax rate,” said Andrew Tilley of Denning, Herring, Sessoms & Company PA. “This will give people more money to spend in the community and in the economy.”

The reform will benefit those at the top, but will do little for those in the middle class and working poor, who need the money the most. They will still be paying other taxes that tend to eat more into their budgets — taxes on everyday items, such as food, gas, and other consumables. The reform will cap the state’s gas tax.

“There won’t be many changes compared to filing for 2012,” said Tilley in a phone interview Monday. “The impact will be felt in filing taxes next January.”

Losing the earned-income tax credit is also yet another blow to those in the lower end of the economic spectrum, particularly the working poor, many of whom may have relied on that credit; however, the new law keeps the state child tax credit while making it slightly larger for families earning under $40,000. The child tax change means that for those earning under $40,000 an additional $25 will be added onto the standard $100 deduction; however, that deduction is not available to those with higher incomes.

“Taxpayers will see less withheld in state taxes during 2013 year,” said Tilley. “The new NC4 form will be what changes that withholding throughout the year.” Employers are now requiring their employees to fill out these forms in order to get prepared for the upcoming change, he added. The new form changes the state withholding, so taxpayers will have larger checks during the year and less in their tax returns at the end of the year when filing.

“This will give North Carolina residents ways to give back to the state and the local community,” said Tilley, noting it will take a while to see the total effect and that it will vary greatly between the tax payers.

The tax reform package will also eliminate several exemptions and deductions that benefited working class taxpayers, including a popular program that allowed families a deduction on pre-tax income into a college savings account. All taxpayers will see an increase in the standard deduction, which will be applied to the first $15,000 of income if married and filing jointly, the first $12,000 of income for those who are heads of household, and single filers will see it applied to the first $7,500 of income.

Corporate income taxes will drop this year as well from the previous 6.9 percent to 6 percent and are slated to fall even further the following year to 5 percent, with the expectation that it will encourage businesses and economic growth within the state.

“Depending on the state’s revenue, it may continue to go as low as 3 percent over the next few years,” said Tilley.

“The changes in the taxes will make North Carolina more competitive,” said John Swope, Executive Director of the Sampson County Economic Development Commission. “We will have to wait and see how our state compares with others.” Swope added that he is optimistic that potential businesses will recognize this as competitiveness.

Swope said that when companies compare statistics about where to locate, the companies tend to look at a wide variety of factors, both on state and local level. For example, a company would look at management and compare the benefits and potential drawbacks with other locations.

“There will be benefits to lowering corporate taxes,” said Tilley. He said this incentive will hopefully lead more businesses to start more corporations in the state and bring more jobs in.

Swope said that North Carolina is often rated in business magazines and usually competes very well, often falling in the top five. He said these changes will help the state overall, increasing our ranking, when it can be difficult to compete with states like Texas that do not have a corporate income tax.

“Generally those with lower taxes fare better than those with higher,” said Swope. “This will be a plus for us, a strong plus, this reducing of our taxes.”

For more information about the income tax changes and to find the revised forms, visit

The Associated Press contributed to this story. Emily M. Hobbs can be reached at 910-592-8137 ext. 122 or via email at