What’s New for Tax Year 2018

Who Must File a North Carolina Individual Income Tax Return?

The Federal Tax Cuts and Job Act (PL 115-97 passed by Congress in December 2017), made several significant changes to federal individual income tax, including increasing the amount of the federal standard deduction.  As a result, certain individuals may be required to file  a North Carolina individual income tax return even if they are not required to file a federal income tax return.  For more information on who must file a North Carolina individual income tax return, see Page 5 of Form D-401, North Carolina Individual Income Tax Instructions. 

Changes to Form D-400

Child Deduction:

North Carolina's child tax credit was repealed and converted to a new child tax deduction.  As enacted, a taxpayer who is allowed a federal child tax credit under section 24 of the Internal Revenue Code is allowed to take a deduction for each dependent child for whom the taxpayer is allowed a federal tax credit.  The new child tax deduction expands the number of taxpayers who may benefit from the State tax deduction by increasing the federal adjusted gross income ("AGI") limit for each filing status.  It also provides five deduction amounts, as opposed to the previous two credit amounts .  For more information on the child deduction, see Page 12 of Form D-401, North Carolina Individual Income Tax Instructions.

Paid Preparer Check Box

If you want to allow the Department to discuss your 2018 State tax return with the paid preparer who signed it, check the box in the signature area of the return.  Importantly, this authorization applies only to the individual whose signature appears in the "Paid Preparer Use Only" section of the return.  It does not apply to the firm, if any, shown in that section.  For more information on paid preparer authorization, see Page 16 of Form D-401, North Carolina Individual Income Tax Instructions.

Changes to Form D-400 Schedule S

North Carolina Itemized Deductions

Taxpayers are allowed to claim North Carolina itemized deductions even if the taxpayer did not claim federal itemized deductions.  A taxpayer who chooses to claim North Carolina itemized deductions must complete Form D-400 Schedule S to determine the correct amount of North Carolina itemized deductions.  For more information on Form D-400 Schedule S, see Page 18 of Form D-401, North Carolina Individual Income Tax Instructions.

Additions to Federal Adjusted Gross Income

An addition to federal adjusted gross income is required for any gain reinvested into a qualified Opportunity Fund under section 1400Z-2 of the Internal Revenue Code ("Code").  For State tax purposes, the gain is not deferred and must be included in the calculation of North Carolina taxable income. 

In addition, a taxpayer who took a State income tax deduction for contributions made to the N.C. 529 plan will not be required to add to federal adjusted gross income the amount deducted in the prior tax year if the funds withdrawn in tax year 2018 were used for a purpose allowed under section 529 of the Code, as amended by Congress in the Tax Cuts and Jobs Act.  For more information on additions to federal adjusted gross income, see Page 16 of Form D-401, North Carolina Individual Income Tax Instructions.

North Carolina Deductions from Federal Adjusted Gross Income

State law permits a taxpayer to deduct from federal adjusted gross income the amount deposited during the taxable year to a personal education savings account ("PESA") under Article 41 of Chapter 115C of the North Carolina General Statutes to the extent the deposit is included in the taxpayer's federal adjusted gross income.  In addition, the taxpayer may deduct certain monies paid to a taxpayer during the taxable year from the State Emergency Response and Disaster Reserve Fund for hurricane relief assistance to the extent this amount is included in federal adjusted gross income  For more information on deductions from federal adjusted gross income, see Page 17 of Form D-401, North Carolina Individual Income Tax Instructions.

Form D-400TC

For tax year 2018, the child tax credit has been repealed and is no longer available.  However, a taxpayer may be entitled to claim a child deduction.  For more information on the child deduction, see Page 12 of Form D-401, North Carolina Individual Income Tax Instructions.

Form D-400 Schedule AM

If you voluntarily file an amended federal tax return with the Internal Revenue Service and the return contains adjustments that increase your State tax payable, you must file an amended tax return with the Department within six months of filing the federal amended return.  If the adjustment decreases your State tax payable, you may file a State amended return within the general statute of limitations for obtaining a refund.  For more information on Form D-400 Schedule AM, see Page 22 of Form D-401, North Carolina Individual Income Tax Instructions.