Impact of NC Income Tax Changes Hits Working Families, Seniors Hard
The News and Observer is out with a detailed article that looks at the impact of the changes to state tax law made back in 2013 that overwhelmingly benefited the wealthy. In the article, we hear from residents of all kinds who report paying more in income taxes than they ever have before.
The most sweeping overhaul of North Carolina tax law in a generation went into effect in January 2014, but it didn’t start hitting home until recently for most taxpayers.
As people file their first state income taxes that actually are impacted by the new law, the size of their refund, or the amount that they owe, can’t help but influence their opinion of the state’s new income tax system.
Ultimately, the collective judgment of individual taxpayers could have political ramifications. That’s because the tax plan was hailed as a major accomplishment that will spur the state’s economy by the Republican-dominated state legislature that pushed it through and by Gov. Pat McCrory, who signed it into law.
At the other end of the political spectrum, Democrats and advocacy groups for the poor and low-income workers opposed the new system, arguing that it benefited the wealthy and shifted more of the tax burden on those who can least afford it.
The new system was designed to be simpler by eliminating the tiered income tax rates that were pegged to income levels and lowering the rates for everyone to a flat 5.8 percent in the 2014 tax year and 5.75 percent this year. At the same time, it eliminated dozens of deductions and credits, including the earned income tax credit for the working poor and deductions for medical expenses, retirement income, child-care expenses and college 529 plans.
The impact of eliminating those deductions varies depending on taxpayers’ individual circumstances. For example, losing the deduction for medical expenses is reverberating among seniors.
Murry Bubar was shocked this year when he did the taxes for his ex-wife, as he always does, and found that she owed $104 under the new system.
His ex-wife, Barbara Bubar, is 79, blind and lives in the Alzheimer’s unit of an assisted-living facility. Her income from Social Security amounted to $9,300 last year.
“This is the first time in years she has had to pay any state taxes,” Bubar said. “Her medical bills are more than her income.”
At the Charlotte office of accounting firm PricewaterhouseCoopers, whose clientele tends more toward the upper end of the income scale, tax director Michelle Hottenstein said she really couldn’t generalize about how the new tax system is affecting individual clients.
“We’re seeing varying results,” she said. “It really is so much driven by the specific circumstances of the taxpayer.”
For example, she said, although business owners certainly benefit from the reduction in the overall tax rate, for some the countervailing impact of the elimination of a deduction on the first $50,000 of business income can end up being a wash.
Brandon Britt, who owns three Liberty Tax Service franchises in Johnston County, said many of his lower-income customers have just one question about their income taxes: “How much am I getting back?”
But this year many, of those customers are experiencing what Britt describes as “sticker shock” when it comes to their state taxes.
“A lot of the lower income people who were used to getting refunds of, say, $100, $200, $300 from the state of North Carolina are ending up owing the state of North Carolina $100 or $200,” Britt said. “I am seeing a larger percentage of my clientele owing the state of North Carolina than has happened in the past.”