taxes income

Once you’ve done it a few times, filling out your annual state income tax form isn’t so hard. You take your federal form, tweak a few numbers, sign it and mail it.

Easy, right?

When you do your North Carolina taxes a year from now, expect a lot of the math to change.

The tax reform package passed by state lawmakers and signed by Gov. Pat McCrory this summer makes some significant changes to individual tax rates, deductions, exemptions and tax credits.

Here’s what’s ahead:

By the end of the year

If you have a job or a pension, you’ll need to fill out a new Withholding Allowance Certificate. (You’re looking for the new version of Form NC-4.) The form determines how much money will come out of each paycheck to cover your state income taxes.

Most people now claim themselves, a spouse (if they have one) and children (if they have them) as exemptions. Under the new law, most people will have exactly zero exemptions.

The bad news: The new form is a lot more complicated than the old one.

The good news: There’s an EZ version that the N.C. Department of Revenue predicts most everyone will be able to use.

The better news: Expect the withholding amount to decrease a little bit, which means you might see a bump in your take-home pay starting in January.

This change won’t affect federal withholding.

In 2014

If you file your state taxes annually, you’ll use the familiar old forms to pay your 2013 tax bill by the April 15 deadline. That means you’ll still have all your old deductions, exemptions and tax credits for one more year.

If you file quarterly, you’ll start dealing with the changes sooner than most.

In 2015

Because the changes to the tax law take effect Jan. 1, you won’t notice most of these changes until you sit down a year from now to do your 2014 taxes. Here are a few of the things that will be different:

• Your tax rate will go down. N.C. taxpayers currently pay state taxes of 6 percent, 7 percent or 7.75 percent of their annual income, depending on how much they make. That will drop to 5.8 percent in 2014 and 5.75 percent in 2015 no matter what your income is. (Yes, this is what a flat tax looks like.)

• Your standard deduction will go way up. The amount you subtract from your income number to figure out your tax bill is $3,000 for single people and $6,000 for married people filing jointly. In 2014, it goes up to $7,500 for single folks and $15,000 for joint filers.

• Don’t get too excited: Your personal exemption will disappear in 2014. In addition to your standard deduction (or adjusted one, if you itemize your deductions), North Carolina now lets you claim yourself, a spouse and your kids as exemptions — and each exemption knocks an extra $2,000 or $2,500 off your income. The new tax law simplifies things by getting rid of the exemptions and rolling everything into the standard deduction covered in the last bullet point.

• If you want to itemize your deductions, the state will cap deductions for mortgage interest and property taxes at a combined $20,000 per year. 

• Your kids might be worth a little more — or they might be worthless (for tax purposes, that is). The current child tax credit is $100 per child 17 or younger. A lot of families will continue to get this same amount. For lower-income families — those who make less than $40,000 — the credit will rise to $125 per child. For wealthier taxpayers — joint filers who make more than $100,000 a year, for instance — child tax credits will no longer be available starting next year.

• Speaking of tax credits, several will go away next year. Among them are credits for child care expenses, special education tuition, being permanently disabled, property tax payments on farm equipment, donations of real estate for conservation purposes and charitable contributions made by those who don’t itemize their taxes. Sadly, the tax credit for donating oyster shells to the N.C. Division of Marine Fisheries also didn’t make the cut.

• The tax code changes eliminate several deductions. One is for severance pay. A two-year-old provision that let small-business owners take up to $50,000 in business income off their personal tax returns also was repealed. If you take federal deductions for medical expenses, investment interest, personal property taxes or job expenses, you’ll have to add them back into your state return starting next year.

• Seniors will lose an exemption of $2,000 if their retirement income comes from private sources (such as a pension or an individual retirement account) or $4,000 for some retired government workers.

Contact John Newsom at 373-7312 and follow @JohnFNewsom on Twitter.

 

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