North Carolina State Tax Help

In what cases should I enter Other Additions?

Other Additions need to be included in the following cases:
  • North Carolina did not conform to the extension of the federal provision that allowed an exclusion from gross income for the discharge of qualified principal residence indebtedness under section 108 of the Code. If you made this election, an addition to federal adjusted gross income is required for the amount excluded from gross income on your federal return.
  • North Carolina did not conform to the extension of the federal provision which allowed an exclusion from gross income for a qualified charitable distribution from an individual retirement plan by a person who has attained age 70 1/2 under section 408(d)(8) of the Code. Therefore, an addition to federal adjusted gross income is required for the amount excluded from gross income on your federal return.
  • North Carolina doesn't allow the domestic production activities deduction, so if you claimed it on Line 35 of your federal Form 1040, you'll need to add the amount back here.
  • If you elected to exclude a lump-sum distribution from a retirement plan from your regular federal income tax computation and computed the tax separately, the amount of the lump-sum distribution must be added to taxable income.
  • If you carry over a net operating loss from another year to the 2013 return, an addition is required for the amount of net operating loss carried to the 2013 tax year that is not absorbed and will be carried forward to subsequent years.
  • If you are a shareholder in an S Corporation that paid built-in gains tax for federal income tax purposes, you must add to taxable income your share of the built-in gains tax that the S Corporation paid.
  • You must add to taxable income any amount that was contributed to North Carolina's National College Savings Program (NC 529 Plan) and deducted in a prior year that was later withdrawn and used for purposes other than the qualified higher education expenses of the designated beneficiary unless the withdrawal was due to the death or permanent disability of the designated beneficiary.
  • If you qualified and elected to report your child's unearned income on your federal return, you included only the child's unearned income in excess of $1,900 in your taxable income. The difference in the child's standard deduction of $500 and the amount of his income not included in your federal taxable income must be added to your income in figuring your North Carolina taxable income.

Who may take a deduction for contributions to North Carolina's National College Savings Program?

If you contributed to an account in the Parental Savings Trust Fund of the State Education Assistance Authority (North Carolina's National College Savings Program - NC 529 Plan) you may take a deduction of up to $2,500 (or $5,000 if Married Filing Jointly), regardless of your income level.

What is long-term care insurance?

A long-term care insurance contract is any insurance contract under which the only insurance protection provided is for coverage of qualified long-term care services as defined in section 7702B of the Internal Revenue Code. Qualified long-term care services are those services required by a chronically ill individual and provided under a plan of care prescribed by a licensed health care practitioner.

Medical insurance premiums that you pay for general health care, hospitalization, or disability insurance do NOT qualify as premiums paid for a long-term care insurance contract.

No credit is allowed for payments that are deducted from, or not included in, your federal gross income for the taxable year. For example, payments that are not included in federal income are premiums paid through an employer-sponsored plan in which the payments are excluded from taxable wages (pre-taxed dollars). If you claimed a deduction for medical expenses on federal Schedule A, Line 4, or if you claimed a deduction for self-employed health insurance premiums on federal Form 1040, Line 29, you are not entitled to claim this credit. However, you may claim this credit for any premiums paid for long-term care insurance that are not deductible on your federal return because of the age limitations of the Internal Revenue Code.

What qualifies a volunteer firefighter or rescue squad worker to take this deduction?

You must have attended at least 36 hours of fire department drills and meetings or 36 hours of rescue squad training and meetings during 2013 to qualify for this deduction.

You may not claim a deduction as both a volunteer firefighter and a volunteer rescue squad worker. In the case of a married couple filing a joint return, each spouse may qualify separately for the deduction, with the same requirements applicable for your spouse to take the deduction.

Am I eligible for the Credit For Taxes Paid to Another State or Country?

When income is taxed by North Carolina for a period during which you are a legal resident of North Carolina and the same income is also taxed by another state or country because it was earned in or derived from sources within that state or country, a tax credit may be claimed. You must have already filed a return with the other state or country to claim this credit.

How do I determine the Tax Paid to the Other State or Country?

The amount of net tax paid is any prepayment of tax (tax withheld, estimated tax payments, amount paid with extension, etc.) plus any additional tax paid or less any refunds received or expected to be received.

You must have already filed (or at least completed) your other state return to have this amount. It's simply the amount of tax you were required to pay to the other state as shown on that state's return on income that's also being taxed by North Carolina.

What is the Bailey Settlement?

As a result of the North Carolina Supreme Court's decision in Bailey v. State of North Carolina, North Carolina may not tax certain retirement benefits received by retirees (or by beneficiaries of retirees) of the State of North Carolina and its local government or by the United States government retirees (including military). The exclusion applies to retirement benefits received from certain defined benefits plans, such as the North Carolina Teachers' and State Employees' Retirement System, the North Carolina Local Governmental Employees' Retirement System, the North Carolina Consolidated Judicial Retirement System, the Federal Employees' Retirement System, or the United States Civil Service Retirement System, if the retiree had five or more years of creditable service as of August 12, 1989.

This exclusion also applies to retirement benefits received from the North Carolina's 401(k) and 457 plans if the retiree had contributed or contracted to contribute to the plan prior to August 12, 1989. This exclusion does not apply to retirement benefits paid to former teachers and state employees of other states and their political subdivisions.

If you're entitled to exclude your retirement benefits under the Bailey Settlement, enter the amount of your excludable retirement benefits that were included in your federal taxable income.

Distributions from most types of retirement plans may be rolled over into another retirement plan or into an IRA. Because rollover distributions lose their character upon rollover, all distributions from a qualifying Bailey retirement account in which the employee / retiree was vested as of August 12, 1989, are exempt from state income tax regardless of the source of the funds contained in the account. Conversely, qualifying tax-exempt Bailey benefits rolled over into another retirement plan lose their character and would not be exempt upon distribution from the other plan unless the plan is a qualifying Bailey retirement account in which the employee was vested as of August 12, 1989.

Rollovers to IRAs will always result in a loss of tax-exempt status since IRAs do not qualify under the Bailey settlement.

What is use tax?

An individual owes consumer use tax on an out-of-state purchase when the item purchased is subject to North Carolina sales tax, and the retailer making the sale does not collect sales tax on the sale or the state sales tax rate imposed by the other state is less than the state sales tax rate imposed by North Carolina.

Out-of-state retailers that are not "engaged in business" in North Carolina are not required to collect North Carolina's tax. However, some out-of-state retailers voluntarily collect North Carolina tax as a convenience to their customers. Out-of-state retailers include mail-order companies, television shopping networks, firms selling over the internet, and other retailers.

Essentially if you bought something online and paid sales tax for it, then you don't have to pay use tax. But if you bought something online and paid no sales tax, then you used it while in North Carolina, you need to pay use tax on the item at the sales tax rate.

What are examples of items subject to North Carolina use tax?

Items subject to sales and use tax include but are not limited to the following:
  • Computers and other electronic equipment
  • Prewritten software including electronic downloads of software
  • Books, books on tape, and digital books delivered or accessed electronically
  • Audio compact discs, tapes, and records
  • Digital music delivered or accessed electronically
  • Magazines and newspapers including those delivered or accessed electronically
  • Clothing, appliances, furniture, home furnishings, sporting goods, and jewelry
  • Ringtones
  • Movies delivered or accessed electronically
  • Sales or recharges of prepaid telephone calling cards and phones

Do I qualify for the Credit for Charitable Contributions by Nonitemizers?

If you claimed the Standard Deduction on your federal return, you may claim a credit on your North Carolina return for charitable contributions you made during the year to a qualified organization. You may not claim the credit if you claimed itemized deductions on your federal return.

The credit may not be claimed for contributions for which credits for certain real property donations, gleaned crops, or recycling oyster shells are claimed. This credit may not exceed the tax liability for the tax year, reduced by other tax credits.

At what rate do I calculate my use tax?

The use tax is calculated at the same rate as the sales tax.

For January 1, 2013 through March 31, 2013, the rate was 7.25% in Mecklenburg County, 7% in Alexander, Buncombe, Cabarrus, Catawba, Cumberland, Duplin, Durham, Halifax, Haywood, Hertford, Lee, Martin, Montgomery, New Hanover, Onslow, Orange, Pitt, Randolph, Robeson, Rowan, Sampson, Surry, and Wilkes Counties, and 6.75% in all other counties.

For April 1, 2013 through December 31, 2013, the rate was 7.5% in Durham and Orange Counties, 7.25% in Mecklenburg County, 7% in Alexander, Buncombe, Cabarrus, Catawba, Cumberland, Duplin, Edgecombe, Greene, Halifax, Haywood, Hertford, Lee, Martin, Montgomery, New Hanover, Onslow, Pitt, Randolph, Robeson, Rowan, Sampson, Surry and Wilkes Counties, and 6.75% in all other counties.

If you paid another state's sales or use tax on out-of-state purchases, that amount may be credited against the North Carolina use tax due. You may not claim a credit for sales tax or value-added tax paid to another country.

What are estimated tax payments? What do I enter on this screen?

  • Enter any estimated tax payments you made for 2013.
  • Enter any amounts credited from your 2012 return.
  • Enter any amount prepaid with extension requests.

Do NOT enter any amount of your 2013 North Carolina Income Tax withheld by your employer(s) as shown on any wage or tax statements.

What does NOT qualify for the Severance Pay Deduction?

"Stay on pay" does not qualify for the deduction. Severance wages do not include payments that represent compensation for past or future services. Compensation for past or future services include payment for accumulated sick leave, vacation time, other unused benefits, bonuses based on job performance, or payments in consideration of any agreement not to compete.

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