Since NC uses the federal AGI when calculating income taxes, each year updates must be made to adjust for any changes to the Internal Revenue Code.  Here are details of the changes to NC’s tax code via Senate Bill 20.  And while there are many provisions outlined in the law, I wanted to focus on the ones dealing with education:

Teachers’ Classroom Expense Deduction
This bill would result in conformity with the extension of the federal teachers’ classroom expense deduction for tax year 2014.

  • Explained – This deduction allows primary and secondary education professionals to take an above-the-line deduction for qualified expenses up to $250 paid out-of-pocket during the year.
  • Federal Background – This deduction was established under EGTRRA in 2001 (beginning with tax year 2002) and was scheduled to expire in 2006. It was subsequently extended through 2013. TIPA extended the deduction for one more year.
  • North Carolina Background – Prior to 2012, teachers in North Carolina were allowed the deduction at the State level because North Carolina began its calculation of taxable income with federal AGI. In 2012, North Carolina enacted a stand-alone individual income tax deduction for this purpose. The stand-alone provision was enacted because, at the time, the federal deduction was set to expire and Congress had not yet acted to extend it. However, this deduction was repealed as part of the Tax Simplification and Reduction Act of 2013 (HB 998), effective for tax years beginning on or after January 1, 2014. Because Congress has extended the deduction for tax year 2014, the update of the IRC reference in this bill would mean that teachers will continue to be able to take advantage of this deduction.

Higher Education Deduction
Section 1.3 of the act does not conform to the extension of the federal qualified tuition and expenses deduction for tax year 2014. The cost to conform to this provision would be approximately $1 million.

  • Explained – Subject to income limitations, a taxpayer may take an above-the-line deduction for qualified education expenses paid during the year for the taxpayer or the taxpayer’s spouse or dependents. Generally, any accredited public, nonprofit, or proprietary post-secondary institution is an eligible educational institution. The maximum deduction is $4,000 for an individual whose adjusted gross income for the tax year does not exceed $65,000 ($130,000 for MFJ filers), or $2,000 for other individuals whose adjusted gross income does not exceed $80,000 ($160,000 for MFJ filers).
  • Federal Background – This deduction was established under EGTRRA and was scheduled to expire in 2006. It was subsequently extended through 2013. TIPA extended the deduction for one more year.
  • North Carolina Background – North Carolina had conformed to this provision until last year when it decoupled for the 2013 taxable year.