Raleigh, N.C. — An overhaul of North Carolina's tax code that lawmakers passed in July takes effect with the new year, bringing a raft of changes to people's paychecks and, starting next year, their annual income tax returns.
The existing graduated income tax system will be replaced with a flat tax. Instead of paying 6 percent on the first $13,000 in earnings, 7 percent on everything over that up to $60,000 and 7.75 percent on anything above that, all income will be taxed at 5.8 percent.
Lawmakers also more than doubled the standard deduction. Single filers earning $40,000 a year will pay $2,464 in state income tax this year, not counting other deductions or any credits. Next year, the tax bill for the same person would be $1,885, or $579 less.
Because the new tax is flat, people who make more money will get a bigger break than those who make less.
For example, someone making $100,000 a year owes $6,940 in state income tax this year, not counting deductions or credits. Next year, it will be $5,365, or $1,575 less.
Some people may end up paying more overall in state taxes however, because lawmakers expanded the state sales tax to more items and eliminated a number of deductions and credits. Some of those changes include repealing the deduction for some retirement income – Social Security income remains exempt to state tax – as well as the exemption for the first $50,000 in earnings for a small business and ending credits for child care or educational expenses.
Also, the earned-income tax credit for low-income families has been eliminated.
Another change that takes effect Wednesday seeks to make electric car owners pay more in highway taxes.
North Carolina pays for its road construction and maintenance mostly through gas taxes. People who drive plug-in electric vehicles aren't paying any gas tax even though they're using the roads.
So, as of Jan. 1, registering an electric car in North Carolina will cost an extra $100 fee in lieu of the gas tax to support the State Highway Trust Fund.