Gov. Pat McCrory ran on a slew of promises when campaigning back in the fall, one of which was to reform the tax code in North Carolina, something that the N.C. General Assembly has been looking to do for years. His recent signing of House Bill 82, may be interpreted as his way of doing that. Each year N.C. updates its tax code to conform with federal changes. House Bill 82 was designed to update statutory references to the Internal Revenue Code (IRS), incorporating and conforming to many provisions contained in the American Taxpayer Relief Act (ATRA) of 2012.
“The reason for this bill is to coincide with federal regulations," said Sen. Jim Davis who voted in favor of the bill. “We want to make sure that people who don't pay in, don't get earned income credit. There's a lot of fraud that goes along with this.”
According to the IRS, the Earned Income Tax Credit (EITC) is a refundable tax credit designed for lower to moderate income working families and individuals. The amount of the credit varies depending on a citizen's level of income and how many dependents they support. The tax credit can generate a tax refund larger than the amount of tax paid in through withholding. It was created in part to offset the burden of Social Security taxes and to provide an incentive to work. When EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.
A Democrat-controlled General Assembly established the state earned income credit in 2007 and set it to expire in five years. Republicans extended it for another year. Since 2007, the state has offered a tax credit that is five percent of the federal earned income tax credit. Earned income and adjusted gross income must each be less than $50,270 for a married couple filing jointly making the federal EITC maximum amount at $5,891 for a married couple with three children which translates to the maximum state rebate of $294. The amount is capped at three children and does not increase with four or more. Different circumstances will return different dollars to taxpayers. For example, if a taxpayer has one or more children, they receive the maximum tax credit if they earned a little over $15,000 but not more than $20,000 a year. For every dollar earned over $20,000, the tax credit decreases.
More than 900,000 low-and moderate-income taxpayers received the modest tax break last year under the state’s earned income tax credit. In accordance to the new law, the state credit will expire after returns for 2013 are submitted next spring, but the last round of credit will be at 4.5 percent of the federal EITC.
The earned income tax credit cost the state $105 million last year.
“Our tax dollars are very sacred this year with a lot of things we need to do, and that is $105 million that we are literally writing checks for,” said Rep. Julia Howard, a Republican chairman of the House Finance Committee.
According to Alexandra Sirota of the North Carolina Justice Center, the bill will end up hurting income earners.
“The primary concern presented in the House Finance Committee was the fiscal impact to the state of conforming to federal changes,” says Sirota. “However, HB 82 conforms to many costly federal provisions and adapts the state tax code to alter provisions that primarily benefit middle- and lowincome taxpayers.”
The bill passed the N.C. House by a vote of 80-36 and the Senate by a vote of 33-17, with disagreement falling largely along party lines with Republicans in support and Democrats in opposition.