Important Notice: Impact of Federal Law on North Carolina Individual and Corporate Income Tax Returns for Tax Year 2025

The Revenue Laws of North Carolina ("Revenue Act") references the Internal Revenue Code ("Code") as of a certain date as the starting point for determining North Carolina income tax for individuals and corporations.1  Currently, the Revenue Act references the Code as enacted as of January 1, 2023.

The purpose of this notice is for the North Carolina Department of Revenue ("NCDOR") to provide guidance to taxpayers on how differences in the Code in effect for tax year 2025, and the Revenue Act may impact the filing of the 2025 North Carolina income tax return.

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  A "corporation" is any entity subject to income tax imposed under Article 4, Part 1 of the Revenue Act.

As noted above, the starting point for determining North Carolina income tax for individuals and corporations is adjusted gross income ("AGI") and federal taxable income ("FTI"), respectively, as determined under the Code as of January 1, 2023.  The Revenue Act did not automatically update to follow the Code in effect for tax year 2025.  Instead, the North Carolina General Assembly ("General Assembly") must enact legislation to adopt federal tax changes made to the Code.

As of the date of this notice, the General Assembly has not enacted legislation to reference the Code after January 1, 2023.  As such, for tax year 2025,1 an individual cannot include in AGI and a corporation cannot include in FTI the federal tax changes included in the Federal Disaster Tax Relief Act of 2023 ("FDTRA") and the One Big Beautiful Bill Act, ("OBBBA") (collectively, "Federal Legislation").2 Federal tax changes included in the Federal Legislation include, but are not limited to, changes made to domestic research and experimentation ("R&E") expenditures and changes made to bonus depreciation.

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  Federal changes made to the Code after January 1, 2023, that impact an earlier tax year are likewise excluded.

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  S-Corporations, partnerships, estates, and trusts cannot include any federal change made to the Code after January 1, 2023, when computing North Carolina taxable income.

The General Assembly is scheduled to convene after April 15, 2026, the due date to file a NC income tax return ("Return") for tax year 2025 if the taxpayer reports on a calendar year basis.1  During the session, the General Assembly may enact legislation to reference the Code in effect for tax year 2025.  Even if the General Assembly updates the Revenue Act to reference the most recent version of the Code, it may choose not to follow (i.e., decouple from) certain provisions of the Federal Legislation.

Notwithstanding the above, a calendar year-end taxpayer required to file a Return for tax year 2025 and whose AGI or FTI is impacted by the Federal Legislation must take one of the following actions by April 15, 2026:

1. Get an Extension to File the Return.  An extension will provide the taxpayer additional time to determine if the General Assembly enacts legislation to update the State's reference to the Code and if the Revenue Act is modified to decouple from certain provisions of the Federal Legislation.  Note: A taxpayer that does not file the Return with NCDOR by the due date for filing the Return must be granted an extension to avoid the penalty for failure to file the Return by the due date of the Return.  Moreover, an extension to file the Return is not an extension to pay tax due with the Return.  To avoid interest and penalty for failure to pay a tax when due, a taxpayer that is granted an extension must pay any tax due to NCDOR by the due date of the Return, not including the extension.

2. File the Return.  A taxpayer that files a Return prior to any action by the General Assembly must exclude from AGI or FTI the federal tax changes included in the Federal Legislation.  Note.  A Taxpayer must complete and attach a schedule to the Return that reconciles AGI or FTI as calculated under the Code in effect for tax year 2025 with the Code as of January 1, 2023.  Moreover, a Taxpayer may be required to amend the Return if the General Assembly makes changes to the Revenue Act after the Return is filed.

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  N.C. Gen Stat. §§105-155 and 105-130.17.

A taxpayer required to file a Return whose AGI or FTI is impacted by the Federal Legislation should check the NCDOR website for updates that will be posted as they become available. Taxpayers should also subscribe to receive NCDOR e-alerts.  NCDOR e-alerts are a convenient way to receive important North Carolina tax information.

If you have questions about this notice, you may call the North Carolina Department of Revenue Customer Service line at 1-877-252-3052 (7:00 am through 4:30 pm Eastern Time, Monday through Friday), or write to Customer Service, PO Box 1168, Raleigh, NC 27602-1168.

Individual Income Tax

North Carolina General Statute ("N.C. Gen. Stat.") § 105-153.7(a) provides that "a tax is imposed for each taxable year on the North Carolina taxable income of every individual."

N.C. Gen. Stat. § 105-153.4 provides that for an individual who is a resident of this State and for an individual who is a nonresident or part-year resident of this State who has income subject to North Carolina individual income tax, 1the term "North Carolina taxable income" is the taxpayer's "adjusted gross income" as modified in N.C. Gen. Stat. §§ 105-153.5 and section 62 of the Code.

N.C. Gen. Stat. § 105-153.3(1) defines "adjusted gross income" by cross reference to section 62 of the Code.

N.C. Gen. Stat. § 105-153.3(2) defines "Code" by cross reference to N.C. Gen. Stat. § 105-228.90.

N.C. Gen. Stat. § 105-228.90(b)(7) defines "Code" as the Internal Revenue Code as enacted as of January 1, 2023, including any provisions enacted as of that date that became effective before or after that date.

Corporate Income Tax

N.C. Gen. Stat. § 105-130.3 provides that a tax is imposed on the "State net income" of every C Corporation doing business in this State.

N.C. Gen. Stat. § 105-130.2(15) defines the term "State net income" as the taxpayer's federal taxable income as determined under the Code, adjusted as provided in N.C. Gen. Stat. § 105-130.5 and, in the case of a corporation that has income from business activity that is taxable both within and without North Carolina, allocated and apportioned to North Carolina as provided in N.C. Gen. Stat. § 105-130.4.

N.C. Gen. Stat. § 105-130.2(2) defines "Code" by cross reference to N.C. Gen. Stat. § 105-228.90.

N.C. Gen. Stat. § 105-228.90(b)(7) defines "Code" as the Internal Revenue Code as enacted as of January 1, 2023, including any provisions enacted as of that date that became effective either before or after that date.

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  N.C. Gen. Stat. § 105-153.2