North Carolina Taxpayers May Now Deduct Wages Related to the Federal Employee Retention Credit
North Carolina Governor Roy Cooper signed House Bill 243 into law on March 17, 2022. With the passage of this law, North Carolina taxpayers, who have claimed a federal Employee Retention Credit (“ERC”) related to wages they paid in 2020 and 2021, are now allowed to reduce their North Carolina taxable income by an amount equal to the federal ERC claimed.
For federal tax purposes, the IRS requires taxpayers who claim an Employee Retention Credit to reduce the amount of wages they deduct on their federal income tax return by an amount equal to the credit that was claimed. Until the passage of this recent legislation, this reduction in wages was also required when determining a taxpayer’s North Carolina tax liability.
As a result of the recently enacted North Carolina legislation, taxpayer’s may now reduce their North Carolina taxable income by the amount of the federal employee retention credit that was claimed. The newly enacted law is effective for tax years beginning on or after January 1, 2020; therefore, impacted taxpayers may go back and amend their 2020 and 2021 (if already filed) North Carolina income tax returns to claim this additional deduction.
The North Carolina Department of Revenue has indicated that they will be releasing additional guidance on how taxpayers should go about amending any impacted North Carolina income tax returns.
If you have any questions regarding the recent North Carolina legislation and the impact it may have on your business, please do not hesitate to reach out to your trusted BRC tax advisor.