2021 NC Budget – Income Tax Implications

On November 18th, Governor Cooper signed the NC budget into law. While there are many things in the budget, we are going to highlight some of the  bigger income tax implications.

Business Owners

  • NC now conforms with IRS tax treatment on several Covid related measures. As a result, items like Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDLS), and Shuttered Venue and Restaurant Revitalization Grants no longer have adverse impacts to NC Income taxes. Action Item: Taxpayers with any of these items should evaluate amending their 2020 income tax returns.
  • The 2021 corporate income tax rate will be 2.5% and it will gradually be lowered until it hits 0% in 2030.
  • At the federal level, the state and local income tax deduction is capped at $10,000. This budget introduces a State And Local Tax (SALT) Cap workaround. Starting in 2022, S corporations or partnerships can make an election and pay state income taxes so that the owners get a fuller benefit of state income tax payments.
  • A Business Recovery Grant Program will be established between 60 and 90 days after the passing of the budget. Current interpretation is that a business must have an economic loss of 20% or greater from 3/1/2020 to 2/28/2021 as compared to the preceding 12 months and either be in the entertainment, hospitality, or restaurant industry; or if in another industry, then it must have had a 20% economic loss and not have received previous federal assistance. More details to follow on this program as it is established.


  • The NC income tax rate will decrease to 4.99% for 2022 and continue lowering until it hits 3.99% in 2026.
  • Starting in 2021, military retirement for service members with at least 20 years of service will not be taxable to NC.

We hope this information is helpful and we will update with additional information as appropriate.