Tax Changes 2009
College Credit
There are a few college tax credits that help to soften the low of educational expenses.
The American Opportunity Tax credit will be available for 2009 and 2010. The credit has been expanded to cover the first four years of college, rather than the first two. Qualified expenses now include textbooks. The credit can be as much as $2,500 with the maximum refundable portion being $1,000. The student must be enrolled in a program that leads to a degree to certificate and they must be taking at least one-half the normal full time load. As long as you can continue to claim the student as a dependent on your return, you are entitled to claim the credit on your return. Taxpayers with an adjusted gross income of $80,000 or more ($160,000 if married filing joint) will see their credit phased out.
The Lifetime Learning Credit will provide a tax credit for 20% of educational expenses up to $10,000. The maximum credit available per year is $2,000 regardless of the number of students and applies to the post secondary education expenses of you, your spouse and your dependents. The credit is eligible for most educational expenses from graduate degree courses to noncredit courses that help acquire or improve job skills. There is also no limit on the course load. One course is all that is necessary to be eligible.
Tuition and Fees Deduction will allow you to take a deduction for qualified tuition and fees paid in 2008 or 2009. Legislation has passed to extend the Tuition and Fees Deduction to 2008 and 2009. You may be able to deduct up to $2,000 or $4,000, depending on your adjusted gross income.
Student loan interest may be deductible. A maximum deduction of $2,500 is available for individuals with income less than $55,000 ($115,000 for married filing joint). The deduction is reduced at higher incomes and is completely eliminated for incomes greater than $70,000 ($145,000 for married filing joint).
Retirement Savings Bonus
The maximum amount that can be contributed to either an Individual Retirement Account or to a company 401(k) plan is higher once you reach 50 years of age. For tax year 2008, the maximum IRA contribution that a person age 50 or older can make is $6,000 as opposed to $5,000 for everyone else. If the plan allows it, the maximum contribution for a company 401(k), 403(b), SEP, and 457 plan is $20,500 for age 50 or older in 2008.
IRA Contribution and Deduction Limits
The contribution limit to a traditional or Roth IRA for 2009 stays at $5,000. If you reach age 50 before 2009, this limit is increased to $6,000. Individuals that are covered by a retirement plan at work may only make deductible IRA contributions if their income meets certain thresholds. For 2009, that threshold is $65,000 if single and $109,000 if married filing jointly or qualifying widow(er).
Hybrid Cars and Alternative Motor Vehicles
If you plan on purchasing a new car, consider a hybrid vehicle. You may be able to take a credit for certain hybrid, fuel cell, advanced lean-burn, and alternative fuel vehicles placed in service during the year. The credit is only available to the original purchaser of a new, qualifying vehicle. The amount of the credit is based on the Year, Make, and Model of the vehicle as well as when the vehicle was purchased.
Educator Expenses
The educator expense deduction of qualified expenses has been extended to 2008 and 2009. The deduction is limited to $250 of an educator's out-of-pocket ordinary and necessary classroom related expenses.
General Sales Taxes
The option for taxpayers to deduct state and local general sales as itemized deductions has been extended to 2008 and 2009. You can deduct either state and local income tax or state and local general sales tax, but not both. You may use your actual expenses, or you can use the optional sales tax tables.
Non-Itemized Real Property Tax Deduction
For 2008 and 2009 only, it is possible to increase your standard deduction by a maximum of $500 ($1,000 if married filing jointly). The standard deduction is increased by the amount of otherwise deductible real estate taxes. Real estate taxes that were deducted when figuring your adjusted gross income cannot be included.
Personal exemption amount
In 2009, you will be allowed to deduct $3,650 for each person claimed on your return.
Standard Mileage Rate
The 2009 standard mileage rate allowed for the business use of a vehicle will be 55/c per mile. The rate for use of your car to get medical care or for figuring deductible moving expenses will be 24/c per mile. The mileage rate for charitable purposes will be 14/c per mile.
Social Security Maximum
The maximum amount of wages or self-employment earnings that will be subject to the social security tax will increase to $106,800 in 2009.
Section 179
The maximum section 179 deduction you can elect for property placed in service in 2009 will be $250,000. This amount will be reduced when the cost of section 179 property placed in service during the year exceeds $800,000.
50% Bonus Depreciation Extended Another Year
Under the American Recovery and Reinvestment Act, 50% bonus depreciation has been extended to qualifying property placed into service in 2009.
First-Time Homebuyer Credit
The 2008 first-time homebuyer credit has been extended to 2009 with some changes. The tax credit is now equal to the lesser of $8,000 ($4,000 if married filing separately) or 10% of the homes purchase price, previously the maximum was $7,500. Also, the repayment requirement on the first-time homebuyer credit has been waived for homes purchased after January 1, 2009 unless the taxpayer sells the residence, or the residence ceases to be the taxpayers principal residence within 36 months of the purchase. The credit is available to homes purchased before December 1, 2009.
Non-Itemized Sales Tax Deduction
Taxpayers purchasing new passenger vehicles on or after February 17, 2009 and before January 1, 2010 may be able to deduct the sales or excise tax on the purchase, even if they do not itemize their deductions. The sales tax can be added to the standard deduction. The deduction is calculated on the first $49,500 of the purchase price. The deduction is phased for adjusted gross incomes over $125,000 ($250,000 if married filing joint).
Excludible Unemployment Income
For 2009 only, the American Recovery and Reinvestment Act allows taxpayers to exclude the first $2,400 of unemployment compensation from gross income.
Making Work Pay Credit
The American Recovery and Reinvestment Act allows for eligible taxpayers to receive a tax credit equal to $800 for married filing joint, or $400. The credit is calculated as the lesser of 6.2% of earned income or $400 ($800 if married filing joint). The credit will typically be used as a reduction of income tax that is withheld from a paycheck, otherwise it will be claimed through a credit on a tax return. The credit is phased out when adjusted gross income is above $75,000 ($150,000 if married filing joint). Nonresidents, estates, trusts or individuals claimed as a dependent on another persons return do not qualify for this credit.
Child Tax Credit
The amount remains at $1,000 per dependent child under the age of 17. The refundable portion is increased for 2009 and 2010. Specifically, the child tax credit is refundable to the extent of 15% of the taxpayer's earned income in excess of $3,000.
Residential Energy Credits
This credit, which expired after 2007, has been reinstated. You may be able to claim a nonbusiness energy property credit of 30% of the cost of certain energy-efficient property or improvements you placed in service in 2009. This property can include high-efficiency heat pumps, air conditioners, and water heaters. It also may include energy-efficient windows, doors, insulation materials, and certain roofs. The credit has been expanded to include certain asphalt roofs and stoves that burn biomass fuel.
The total amount of credit you can claim in 2009 and 2010 is limited to $1,500.
Beginning in 2009, there is no limitation on the credit amount for qualified solar electric property costs, qualified solar water heating property costs, qualified small wind energy property costs, and qualified geothermal heat pump property costs. The limitation on the credit amount for qualified fuel cell property costs remains the same.
2009 North Carolina Tax Law Changes At A Glance
The N.C. General Assembly made a number of changes to North Carolina state tax laws. Following is a quick first look at some of the changes, some of which go into effect immediately and others over the next few months.
We will post more information about the changes in the future. Unless otherwise noted, all the dates mentioned are in 2009.
Sales tax increase
The state sales tax will increase by 1% effective Sept. 1. As a result of the increase, the combined state and county tax rate will increase to 8.25% in Mecklenburg County, 8% in Alexander, Catawba, Cumberland, Haywood, Martin, Pitt, Sampson, and Surry Counties, and 7.75% in the remaining 91 counties.
Sales tax on online purchases
Some digital downloads of items like songs and movies may be subject to sales tax effective Jan. 1, 2010. The department will provide a more detailed interpretation of this change soon.
Online sales made by referrals from N.C. website owners
Online retailers who have more than $10,000 worth of sales through online referrals from websites owned by North Carolina residents - such sales are also known as "click-thru's," - may need to charge sales tax on all sales to North Carolina residents. The department will provide a more detailed interpretation of this change soon.
Personal surtax
Individuals who meet certain income requirements will pay a surtax on the amount of tax they owe before any withholding, payments or credits, as shown on Line 14 of the D-400 Individual Tax Return.
Please see the Surtax % Table for the thresholds.
Filing Status | NC Taxable Income | Surtax % |
| Married Filing Jointly/Surviving Spouse | More than $100,000 up to $250,000 | 2% |
| Married Filing Jointly/Surviving Spouse | More than $250,000 | 3% |
| Head of Household | More than $80,000 up to $200,000 | 2% |
| Head of Household | More than $200,000 | 3% |
| Single | More than $60,000 up to $150,000 | 2% |
| Single | More than $150,000 | 3% |
| Married Filing Separately | More than $50,000 up to $125,000 | 2% |
| Married Filing Separately | More than $125,000 | 3% |
For example, if your filing status is "married filing jointly" and your North Carolina taxable income shown on Line 13 of Form D-400 is $150,000, you would compute your "regular" state income tax on Line 14 and then multiply that amount by 2%. The result would be added to your "regular" tax on Line 14 to give you your total tax liability. Then you subtract credits, withholding, payments, etc., to find out if you are due a refund or if you have to pay any additional tax.
- Note: there is no penalty (interest) for underpayment of estimated tax if the underpayment is because of the surtax.
Corporate surtax
Corporations subject to corporate income tax must pay an income tax surcharge of 3% on its North Carolina income tax due before deducting any tax credits or payments.
S corporations filing composite income tax returns on behalf of shareholders who live outside North Carolina must calculate the amount of North Carolina income tax due separately for each nonresident shareholder. That calculation must include the amount of individual income surtax based on the Surtax % Table for individuals with a filing status of single.
- Note: there is no penalty (interest) for underpayment of estimated tax if the underpayment is because of the surtax.
Tobacco products excise tax
Beginning Sept. 1, the state excise tax on cigarettes will increase to 2.25/c per individual cigarette (45/c per pack of 20), and the state excise tax on "other tobacco products" will increase to 12.8% of the cost price of the products. For more information on the tobacco products excise tax increase, click on Important Notice Regarding Cigarette Excise Tax Rate Increase and Tax on Inventory on Effective Date of Increase or Important Notice Regarding Other Tobacco Products Excise Tax Rate Increase and Tax on Inventory on Effective Date of Increase.
In addition, every person subject to the tobacco products tax increase must also file a complete inventory by Sept. 21 and pay an additional tax equal to the difference between the former tax rate and the increased tax rate.
Note: unlike the tobacco tax increase in 2007, retailers that sell tobacco products and are not subject to the tobacco excise taxes are not subject to the additional tax on their inventories of tobacco products (includes cigarettes and other products like cigars and chewing tobacco).
Alcohol excise tax
Beginning Sept. 1, the state excise tax on beer will increase to 61.71/c per gallon, the excise tax on unfortified wine will increase to 26.34/c per liter, the excise tax on fortified wine will increase to 29.34/c per liter, and the excise tax on spirituous liquor will increase to 30% of taxable sales of liquor sold in ABC stores. For more information on the alcohol excise tax increase, click on Important Notice Regarding Alcohol Excise Tax Rate Increase.