NC Income Tax

Subtraction modifications table

| Subtraction | Description | |---|---| | US government bond interest | Interest from US Treasury obligations | | Retirement benefits (Bailey Settlement) | Certain state/local government retirees exempt per court settlement | | Social Security | NC does not tax Social Security benefits |

SE income treatment

Schedule C net profit flows into federal AGI, which flows into NC AGI. NC has no separate self-employment tax — the 4.25% rate applies to all taxable income including self-employment income.

Estimated tax payment threshold

$1,000 or more expected liability after withholding and credits

Estimated tax installment due dates

| Installment | Due date | |---|---| | 1st quarter | April 15 | | 2nd quarter | June 15 | | 3rd quarter | September 15 | | 4th quarter | January 15 (following year) |

Bonus depreciation decoupling

NC does not conform to federal bonus depreciation under IRC §168(k). Taxpayers must add back the difference between federal and NC-allowed depreciation on Schedule S. NC follows its own depreciation schedule (generally pre-TCJA rules). This is critical for self-employed taxpayers with significant equipment or vehicle purchases.

NC Section 179 limit

$25,000

Section 179 excess add-back

NC limits the Section 179 deduction to $25,000 (not the federal expanded amount). Any excess must be added back on Schedule S.

Tier 1 rules table

| Rule ID | Rule | Source | |---|---|---| | NC-T1-01 | NC taxable income = federal AGI ± NC modifications − standard/itemized deduction − child deduction | N.C.G.S. §105-153.4 | | NC-T1-02 | Tax = NC taxable income × 4.25% (TY 2025) | N.C.G.S. §105-153.7; Session Law 2023-134 | | NC-T1-03 | Standard deduction: $12,750 (S), $25,500 (MFJ), $12,750 (MFS), $19,125 (HOH) | N.C.G.S. §105-153.5(a)(1) | | NC-T1-04 | NC §179 limit = $25,000 | N.C.G.S. §105-153.6 | | NC-T1-05 | NC does not conform to IRC §168(k) bonus depreciation | N.C.G.S. §105-130.5B | | NC-T1-06 | Estimated tax required if expected liability ≥ $1,000 | N.C.G.S. §105-163.15 | | NC-T1-07 | NC does not tax Social Security benefits | N.C.G.S. §105-153.5(b)(8) |

Tier 2 rules table

| Rule ID | Situation | Guidance | |---|---|---| | NC-T2-01 | **Multi-state income:** Taxpayer has income from another state | NC taxes all income of residents; credit for taxes paid to other states available on D-400TC. Allocation requires review. | | NC-T2-02 | **Business vs. hobby determination** | NC follows federal hobby loss rules. If IRS disallows Schedule C, NC deductions are also disallowed. | | NC-T2-03 | **IRC conformity date changes** | NC references IRC as of a specific date. If federal law changed after NC's conformity date, add-backs or subtractions may be required. Verify conformity date for the tax year. | | NC-T2-04 | **Home office deduction** | NC conforms to federal home office deduction rules. Flows through federal AGI. No separate NC adjustment needed. | | NC-T2-05 | **Net operating losses** | NC conforms to federal NOL rules with modifications. Post-2017 NOLs limited to 80% of taxable income. Carryforward only (no carryback). |

Supplier pattern library table

| Input needed | Where to find it | |---|---| | Federal AGI | Federal Form 1040, Line 11 | | NC additions | Schedule S, Part A (computed from federal return) | | NC deductions | Schedule S, Part B (computed from federal return) | | Standard deduction | Based on filing status | | Child deduction | Based on NC AGI and number of qualifying children | | Tax credits | D-400TC (credit for taxes paid to other states, child tax credit, etc.) | | Estimated tax payments | NC-40 records | | NC withholding | W-2 Box 17 / 1099 NC withholding amounts |

Form D-400 line mapping table

| Form D-400 Line | Description | Source | |---|---|---| | Line 6 | Federal adjusted gross income | Federal 1040, Line 11 | | Line 7 | Additions from Schedule S | Schedule S, Part A total | | Line 9 | Deductions from Schedule S | Schedule S, Part B total | | Line 11 | NC standard deduction or NC itemized deductions | Computed | | Line 13 | Child deduction | Based on NC AGI and dependents | | Line 14 | NC taxable income | Line 6 + Line 7 − Line 9 − Line 11 − Line 13 | | Line 15 | NC income tax | Line 14 × 0.0425 | | Line 20 | Tax credits | D-400TC total | | Line 23 | NC tax withheld | W-2s / 1099s | | Line 25 | Estimated tax payments | NC-40 payments |

Refusal catalogue table

| Refusal ID | Trigger | Response | |---|---|---| | R-NC-01 | Part-year or nonresident | "NC part-year and nonresident returns require Schedule PN. This is outside the scope of this skill." | | R-NC-02 | Corporate or S-corp return | "This skill covers individual income tax only (Form D-400). Corporate returns (CD-405) are not covered." | | R-NC-03 | Estate or trust return | "NC fiduciary returns (Form D-407) are not covered by this skill." | | R-NC-04 | Amended return | "NC amended returns (Form D-400X Amended) are not covered." | | R-NC-05 | Pass-through entity tax | "NC PTET elections are not covered by this skill." |