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Changes to Allowable Deductions for North Carolina Income Tax

Recently, the North Carolina Department of Revenue issued guidance clarifying that certain Covid related income sources for businesses would not be taxable for state income tax purposes for tax years 2020 and 2021.  Specifically, employers may now deduct the Employee Retention Tax Credit taken on the federal return from any income amount added back to NC income.  Previously, NC DOR guidance was that businesses could not deduct any amounts taken as a credit on the federal return for tax years 2020 and 2021.  The ERTC was a federal tax credit program enacted as part of the CARES Act to provide employers with an additional tax reduction during the pandemic.

In addition to the ERTC adjustment, the proceeds received from Specific Grant Programs for businesses affected by Covid will not be includable in North Carolina taxable income for tax years 2020 and 2021.  These programs include the Business Recovery Grant Program, the ReTOOLNC grant program, and the rent and utility assistance available to businesses created under General Assembly Session Law 2020-4.

In the coming weeks, TJT will be reviewing and amending affected returns.  This would involve amending business returns and the related individual returns of the business owner.  Please contact our office if you have any questions.

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