Taxes of most concern to retirees are listed below:
1. Individual Income Tax:
The basis is federal net taxable income, with certain adjustments required to arrive at NC net taxable income. Depending on the level of federal adjusted gross income (AGI), personal exemptions either track the federal 1989 base amounts (before indexing), or track the base amount plus $500; thus the allowable personal exemptions are either $2,500 or $2,000. The maximum federal AGI for qualifying for the higher personal exemption amount varies with filing status. Standard deductions (including the additional amounts for blindness and/or age 65 and over) track the federal 1988 base amounts (before indexing). The standard deduction is now the same for a single person and for each of a married couple, provided that the married couple files jointly. Federal itemized deductions except income taxes paid are permitted in lieu of the standard deduction. Major items excluded from state taxable income are: social security benefits; interest on obligations of the US; interest on obligations of NC, its political subdivisions and qualifying educational institutions; and income tax refunds. Generally, retirement benefits received by retirees of the state of NC and its local government (including military) are exempt if the retiree had five or more years of creditable service as of August 12, 1989. Other retirees may exclude up to $4000 in federal, state, and local government retirement benefits and up to $2000 in private pension benefits (maximum exclusion for this group for all pension benefits is $4000, regardless of source). Tax rates are 6%, 7%, 7.75% and 8.25% in a four-tier bracket structure; breaking points for the higher tax rates vary according to filing status. Income tax credits include, among others, credits for the disabled, for qualifying dependent care expenditures, and for dependent children.
2. State Sales and Use Tax
Prescription medicine, eyeglasses, certain medical supplies and most services are not subject to tax. Purchases made with food stamps are exempt. Food for home consumption is exempt from state tax but subject to local tax, except in Mecklenburg County, which has a 3% local rate.
3. Property Tax
The income limit for the homestead exemption is adjusted each year for inflation. For the fiscal year beginning July 1, 2005 the limit is $19,700. Homeowners at or under that limit, if aged 65 or over (or permanently disabled) may exempt the greater of $20,000 or 50% of the appraised value of their permanent residence. Household tangible personal property is exempt from property taxation. Property taxes on rural property vary from one part of the state to another but average approximately 66 cents per $100 appraised valuation compared to roughly $1.09 for comparable rates on property inside municipalities in 2004-5.
4. Estate Tax
North Carolina has no inheritence tax. There is an estate tax, equal to the amount set forth in the table in Code Sec. 2011(b)(1). Under current federal law, the first $1,500,000 is exempt and all property passing to a surviving spouse is exempt.
5. Gift Tax
Gifts to spouses are exempt. A progressive schedule of tax rates and brackets exists for the remaining beneficiaries. Tax obligations vary depending on the type of beneficiary. In addition, North Carolina excludes the first $11,000 gift given to each donee per year, and allows with consent one spouse to use the other's $11,000 annual exclusion. Further, a $100,000 lifetime exemption per donor for grants made to Class A beneficiaries is permitted.
Detailed information about local taxes can be obtained from county tax collectors. For specific information about state taxes see a North Carolina attorney, visit the Department of Revenue's website at www.dornc.com/ or contact:
Tax Research Division
N.C. Department of Revenue
P.O. Box 25000
Raleigh, NC 27640
(919)733-4548
This information came from the magazine "North Carolina Retirement" Volume 16, Number 2.
