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the IRS may apply this fact sheet FAQ Operations Appropriations Act of
process in other contexts, such as when 2021. Included in this act are significant With the phaseout
FAQs address emerging issues. changes to North Carolina tax law for
of the corporate
The second tier of FAQs consists of both individuals and businesses. Many
all other FAQs, such as those that are of the changes provide a reduction of income tax, North
merely posted to the IRS website and overall state taxes beginning in 2022
not announced in a news release. These and forward. Carolina will be one
FAQs will not be maintained in the of three states that
same manner as fact sheet FAQs. Thus, Personal income tax changes
taxpayers and practitioners should retain S.B. 105 amends several tax provisions impose neither a
copies of any non–fact sheet FAQs that for North Carolina personal income corporate income tax
they rely on. taxpayers. The personal income tax rate nor statewide gross
The new policy took effect on the for tax years beginning in 2021 is 5.25%.
date of the announcement and applies to This rate will be reduced over the next receipts tax.
all FAQs, including those released by the several years as follows:
IRS before the policy was announced. ■ 2022 — 4.99%
The Service updated its General Over- ■ 2023 — 4.75%
view of Taxpayer Reliance on Guidance ■ 2024 — 4.6% separately filing status) (id. at Section
Published in the Internal Revenue Bul- ■ 2025 — 4.5% 42.1.(c)).
letin and FAQs webpage to reflect the ■ 2026 — 4.25% The taxation of military pension
new stance. ■ 2027 and beyond — 3.99% (2021 income is also eliminated. This applies
Prior to the announcement, reliance N.C. Sess. Laws 2021-180 (S.B. 105), to retired military members who served
on FAQs did not constitute reason- Part XLII., Section 42.1.(a)). at least 20 years or medically retired
able cause under the various Internal For tax years beginning on or after under 10 U.S.C. Chapter 61 (id. at Sec-
Revenue Code penalty provisions that Jan. 1, 2022, the standard deduction tion 42.1A.(a)). The bill also creates a
afforded a reasonable-cause excep- will be increased. The updated stan- stand-alone state net operating loss (id.,
tion. This is because FAQs typically dard deduction amount will be based at Section 42.6.(a)). In prior years, indi-
provide responses to general inquiries on taxpayer filing status, with the new vidual taxpayers were limited to the use
rather than applying the law to taxpayer- amounts as follows: of their federal net operating loss.
specific facts and thus may not reflect ■ Married filing jointly/surviving Prior to the revised rates, North
various special rules or exceptions that spouse — $25,500 (previously Carolina already imposed a relatively
could apply in a particular case. FAQs $21,500) low personal income tax rate. With its
have no precedential value and may not ■ Head of household — $19,125 eventual 3.99% tax rate, North Caro-
be relied on, used, or cited as precedent (previously $16,125) lina’s rate will only be higher than the
by Service personnel in the disposition ■ Single — $12,750 (previously flat rates currently imposed in Indiana,
of cases. Thus, in cases where an FAQ $10,750) North Dakota, and Pennsylvania. The
is an inaccurate statement of the law as ■ Married filing separately — $12,750 reduction in the personal income tax rate
applied to a particular taxpayer’s case, (previously $10,750) (id. at Section as well as changes made to certain other
federal tax law controls a taxpayer’s 42.1.(b)). deductions are projected to decrease tax
tax liability. North Carolina law allows a de- revenue to the state by $650 million and
From Michael D. Zima, J.D. (Mike. duction for every qualifying child for $1.7 billion for fiscal years 2021–2022
Zima@rsmus.com), Jacksonville, Fla. whom the taxpayer is allowed a federal and 2022–2023, respectively (Joint
child tax credit under Sec. 24. The bill Conference Committee Report on the
increases the child deduction by $500 Current Operations Appropriations Act
State & Local Taxes for each income bracket, effective for tax of 2021, p. A1).
years beginning on or after Jan. 1, 2022,
North Carolina’s recent tax while also expanding the eligibility for Corporate income tax changes
reform through S.B. 105 the deduction for each taxpayer filing S.B. 105 likewise amends several cor-
On Nov. 18, 2021, North Carolina Gov. type (up to $140,000 married filing porate tax provisions. Most notably,
Roy Cooper signed Senate Bill (S.B.) jointly, $105,000 head of household, the state’s corporate income tax will be
105, otherwise known as the Current and $70,000 single or married filing phased out over the next decade. North

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