State & Local Tax Impacts of COVID-19 for North Carolina – 2021

Thoughtware Alert Published: May 03, 2021 | Updated: Dec 16, 2021

Information current as of November 30, 2021.

COVID-19 has changed life across the globe. Many taxing jurisdictions are taking mitigating actions to create social distance and aid taxpayers. The following is a running list of actions by jurisdiction, which generally result in additional time to file and/or pay. Further, many jurisdictions have closed their offices to in-person use by taxpayers and suspended their audit and administrative functions. This alert doesn’t cover similar waivers from local-level taxing authorities. These developments continue to quickly evolve; check with your BKD Trusted Advisor or visit our COVID-19 Resource Center for current information as needed.

Information Specific to North Carolina

  • North Carolina issued guidance on the Paycheck Protection Program (PPP) for individual income, corporate income, and trust income tax purposes that 1) the amount of a PPP loan forgiveness isn’t taxable for state income tax purposes to the extent it’s excluded from federal gross income; 2) taxpayers must make a North Carolina addition for the amount of expenses deducted on the federal return if the expenses were paid with proceeds from a PPP loan; 3) individuals must make the addition to federal adjusted gross income on the Form D-400 Schedule S, Supplemental Schedule; 4) corporations must make the addition to federal taxable income on Schedule H of Form CD-405, C-Corporation Tax Return; and 5) fiscal year filers should make the addition on the tax return in which the expenses were deducted.
    • North Carolina DOR, Paycheck Protection Program, February 19, 2021.
  • North Carolina will extend the April 15 individual income tax filing and payment deadline to May 17 to mirror the announced deadline change from the IRS. The DOR won’t charge penalties for those filing and paying their taxes before May 17. The DOR states that unless state law is changed, tax payments received after April 15 will be charged interest, accruing from April 15 until the date of payment. The deadline extension doesn’t apply to trust taxes such as sales and use or withholding taxes or estimated tax payments due April 15 for corporate income and trust income tax purposes.
    • North Carolina DOR, Press Release; March 18, 2021.
  • North Carolina issued guidance on how personal income taxpayers must treat and report 2020 unemployment compensation. The American Rescue Plan Act of 2021 (ARPA) excludes up to $10,200 of 2020 unemployment benefits from federal individual income tax if the taxpayer’s adjusted gross income for the tax year is less than $150,000. Married taxpayers filing jointly can exclude $10,200 for each spouse. The North Carolina IRC conformity date for computing personal income tax liability doesn’t adopt the ARPA exclusion. The guidance provides specific instructions on where taxpayers must report the addback on their North Carolina return.
    • North Carolina DOR, Tax Notice; March 23, 2021.
  • North Carolina legislation exempts COVID-19 relief payments from the income determination for property tax exemptions. The legislation waives interest and penalties on income tax payments originally due by April 15, 2021, and now due by May 17, 2021, and extends the statute of limitations for refund claims that expired April 15, 2021, to May 17, 2021 (consistent with IRS guidance). The law also clarifies that extra credit grants and COVID-19 relief recovery rebates aren’t considered income for determining income-based eligibility for property tax exemptions. 
    • North Carolina H.B. 279, effective April 27, 2021.
    • North Carolina DOR, Tax Notice; April 28, 2021.
  • North Carolina legislation conforms to the federal treatment afforded expenses using the PPP loans and other federal pandemic-related assistance for tax years beginning before January 1, 2023. In particular, the legislation allows taxpayers a corporate income tax deduction for expenses paid using a loan forgiven under the PPP or the Economic Injury Disaster Loan (EIDL) program, or the Shuttered Venue and Restaurant Revitalization grants. 
    • North Carolina S.B. 105, effective November 18, 2021.

For more information, reach out to your BKD Trusted Advisor or use the Contact Us form below.

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