Paycheck change - Tax reform becomes real next month
Taxpayers here and across North Carolina may get their first real understanding of the impact from state tax reform when they receive their first paychecks early next year.
Local employers, as well as others throughout the state, recently received notices from the N.C. Department of Revenue about changes in the state tax withholding form for their employees. The new withholding forms, which must be in place by the first of the new year, will affect 4.3 million taxpayers, the Revenue Department anticipates based on 2012 tax filings.
The paperwork, known as a NC-4 or NC-4EZ, determines how much is deducted from a worker’s paycheck each pay period for state income taxes. The new forms are required because the Republican-controlled N.C. General Assembly and first-year GOP Gov. Pat McCrory passed a historic overhaul of the state tax system this past summer.
Republicans and conservatives have touted the tax overhaul as a signature achievement of this year’s legislative session, saying that the lower rates for individual and corporate taxpayers will help revive the economy.
But a liberal-leaning group that’s critical of the changes contends that the reality of tax reform won’t be so simplistic as to say everyone will benefit. While tax rates will decline, the reform measure also eliminates or reduces long-standing tax deductions and exemptions, according to the N.C. Budget & Tax Center.
“The significance of it for workers, on their first paycheck after Jan. 1, 2014, is that they will either see from their paycheck a reduction in the amount of taxes that are being withheld or an increase. There will be winners and losers, and we’ve said that all along,” said Alexandra Sirota, director of the Budget & Tax Center out of Raleigh.
The state Revenue Department recognizes the multiple layers of changes because of the tax overhaul in a recent notice sent to employers about the new withholding forms for workers.
“Under this new law, taxpayers may no longer claim a personal exemption for themselves, their spouse, children or any other qualifying dependents. Additionally, many deductions and tax credits that impact North Carolina withholding tax no longer are available beginning on or after Jan. 1, 2014,” according to the Revenue Department.
The Revenue Department isn’t speculating on how the withholding form change will affect individual taxpayers, said Trevor Johnson, director of public affairs for the state agency that comes under the umbrella of the McCrory administration.
Sirota acknowledged to The High Point Enterprise that how the withholding change affects someone’s income will vary with each individual’s circumstances. But she said staff at the Budget & Tax Center has tried to estimate potential broad effects from the change.
“We’ve found that taxpayers earning $84,000 or less on average will see their taxes increase under this plan,” Sirota said. “Taxable income will change significantly next year due to the changes to the standard deduction, elimination of the personal exemption and loss of various deductions and credits. The rate is not the only thing that matters,” Sirota said.
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This past summer, the Republican-controlled N.C. General Assembly enacted major tax reform through a bill that was signed by GOP Gov. Pat McCrory. One aspect of the overhaul was to lower the tax rate. For the upcoming year starting Jan. 1, the across-the-board rate for individual taxpayers will be 5.8 percent. The current rate that will phase out at the end of this year ranges from 6 percent to 7.75 percent through a sliding scale based on income.
Source: N.C. Department of Revenue