The North Carolina Department of Revenue issued an Important Notice titled Impact of the American Rescue Plan of 2021 and the Consolidated Appropriations Act of 2021 on North Carolina’s 2020 Individual Income Tax Return on October 8, 2021.
The notice addresses the state’s tax treatment of various COVID-19 relief provisions excluding certain items of income from federal adjusted gross income for tax year 2020. It also provides instructions on how to make adjustments to North Carolina taxable income to account for differences in state and federal law.
North Carolina is a static conformity state, and current state income tax law references the Internal Revenue Code as of May 1, 2020. Because our General Assembly has not updated the IRC conformity date, provisions in the Consolidated Appropriations Act, 2021 (enacted 12/27/20) and the American Rescue Plan Act (enacted 3/11/21) do not apply when calculating 2020 North Carolina taxable income.
Taxpayers whose federal AGI excluded items of income that would be included in AGI under the IRC as of May 1, 2020, must add back the excluded items on their state return. The notice cites three examples of such excluded items:
- Economic Injury Disaster Loan (EIDL) grants and targeted EIDL advances as described in section 1110(e) of the CARES Act.
- Certain Small Business Association loan payments as described in section 1112(c) of the CARES Act.
- The first $10,200 of 2020 unemployment benefits not subject to federal individual income tax.
As of the date of this notice, an update of the IRC conformity date is still pending as part of the state budget bill, SB 105. House and Senate leaders are negotiating with Governor Roy Cooper to reach a compromise that the governor is willing to sign into law. Both the Senate and House versions of SB 105 include an IRC conformity date of April 1, 2021, but they differ on certain decoupling provisions and other potential state tax changes.
If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE.