Instructions for Filing Form D-400
The information contained in this booklet is to be used as a guide in the preparation of a North Carolina individual income tax return and is not intended to cover all provisions of the law.
Filing Requirements
The minimum gross income filing requirements under North Carolina law are different from the filing requirements under the Internal Revenue Code because North Carolina law does not adjust the standard deduction and personal exemption for inflation as required by the Internal Revenue Code.
Who is required to file a North Carolina individual income tax return?
- Every resident of North Carolina whose income for the taxable year equals or exceeds the amount for his filing status shown in Chart A or B below.
- Every part-year resident who received income while a resident of North Carolina or who received income while a nonresident attributable to the ownership of any interest in real or tangible personal property in North Carolina or derived from a business, trade, profession or occupation carried on in North Carolina, or is derived from gambling activities in North Carolina and whose total income for the taxable year equals or exceeds the amount for his filing status shown in Chart A or B below.
- Every nonresident who received income for the taxable year from North Carolina sources that was attributable to the ownership of any interest in real or tangible personal property in North Carolina or derived from a business, trade, profession, or occupation carried on in North Carolina, or is derived from gambling activities in North Carolina and whose total income from all sources both inside and outside of North Carolina equals or exceeds the amount for his filing status shown in Chart A or B below.
- If you had North Carolina income tax withheld during the year but your income is below the amount required for filing, as shown in Chart A or B below, you must still file a return to receive a refund of the tax withheld.
If you were not required to file a federal income tax return but your gross income from all sources both inside and outside of North Carolina equals or exceeds the amount for your filing status shown in Chart A or B, you must complete a federal return and attach it to your North Carolina income tax return to show how your negative federal taxable income was determined.
You and your spouse must file a joint North Carolina return if you file a joint federal income tax return, and both of you were residents of North Carolina or both of you had North Carolina taxable income.
If you file a joint federal return and your spouse is a nonresident of North Carolina and had no North Carolina taxable income, you may file a joint State return. However, you still have the option of filing your State return as married filing separately. If you choose to file a separate North Carolina return, you must complete either a federal return as married filing separately reporting only your income, deductions, and exemptions, or a schedule showing the computation of your separate federal taxable income and attach it to your North Carolina return. You must also include a copy of your joint federal return unless your federal return reflects a North Carolina address.
When filing a joint return, include the name and social security number of each spouse on the return. Both spouses are jointly and severally liable for the tax due on a joint return unless one spouse has been relieved of any liability for federal income tax purposes as a result of the “innocent spouse” rules provided under Internal Revenue Code Section 6015.
Chart A — For Most Taxpayers (See Chart B for children and other dependents)
Filing Status |
A Return is Required if Federal Gross Income Exceeds |
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Filing Requirements for Children and Other Dependents
If another person (such as your parent) can claim you as a dependent on their federal income tax return, use Chart B below to see if you must file a North Carolina income tax return.
Chart B – For Children and Other Dependents
Single dependents. Were you either age 65 or older or blind?
Yes. You must file a return if any of the following apply to you.
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| Unearned income includes taxable interest, dividends, capital gains, pensions, annuities, and social security benefits. Earned Income includes salaries, wages, tips, professional fees, scholarships that must be included in income, and other compensation received for personal services. Gross income is the total of your unearned and earned income. |
Married dependents. Were you either age 65 or older or blind?
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The Income Tax Return
All individuals (including part-year residents and nonresidents) must file their income tax return on Form D-400. If applicable, be sure to read the section entitled Information for Part-Year Residents and Nonresidents.
When to File
If you file your return on a calendar year basis, it is due on or before April 15 of the following year. A fiscal year return is due on the 15th day of the 4th month following the end of the taxable year. When the due date falls on a Saturday, Sunday, or holiday, the return is due on or before the next business day. A fiscal year return should be filed on a tax form for the year in which the fiscal year begins (For example: A 2007 tax form should be used for a fiscal year beginning in 2007).
Nonresident Aliens: Nonresident aliens are required to file returns at the same time they are required to file their federal returns.
Extensions
If you cannot file your return by the due date, you may apply for an automatic 6-month extension of time to file the return. To receive the extension, you must file Form D-410, Application for Extension for Filing Individual Income Tax Return, by the original due date of the return. You can file Form D-410 online at www.dornc.com. Click on Electronic Services. You should apply for an extension even if you believe you will be due a refund but cannot file by the due date.
You are not required to send a payment of the tax you estimate as due to receive the extension; however, it will benefit you to pay as much as you can with the extension request. An extension of time for filing the return does not extend the time for paying the tax. If you do not pay the amount due by the original due date, you will owe a 10 percent late-payment penalty and interest. The late-payment penalty will not be due if you pay at least 90 percent of your tax liability through withholding, estimated tax payments, or with Form D-410 by the original due date.
A late-filing penalty may be assessed if your return is filed after the due date (including extensions). The penalty is 5 percent per month ($5.00 minimum; 25 percent maximum) on the remaining tax due.
If you do not file the application for extension by the original due date of the return, you are subject to both a late-filing penalty and a late-payment penalty.
Out of the Country: If you were a U.S. citizen or resident and were out of the country on the regular due date of your return (April 15), you are granted an automatic 4-month extension for filing your North Carolina return if you fill in the “Out of the Country” circle on Page 1 of your return. ”Out of the Country” means you live outside the United States and Puerto Rico and your main place of work is outside the United States and Puerto Rico, or you are in military service outside the United States and Puerto Rico. The time for payment of the tax is also extended; however, interest is due on any unpaid tax from the original due date of the return until the tax is paid. If you are unable to file the return within the automatic 4-month extension period, an additional 2-month extension may be obtained by following the provisions in the first paragraph of this section; however, Form D-410 must be filed by the automatic 4-month extended date of August 15.
General Refund Information
If you owe another State or local agency, the amount you owe may be deducted from your refund. If you have an outstanding federal income tax liability, the Internal Revenue Service may claim your North Carolina refund.
Need to Call Us About Your Refund?
The automated refund inquiry line will give you the status of your 2007 refund. You can also obtain amended return refund information. Service is available 24 hours a day seven days a week. If you are informed that your check has not been written, please wait seven days before calling back. You will need the first social security number shown on your return when you call. Note: You can also check the status of your refund at www. dornc.com.
Automated Refund Inquiry Line |
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| Month Return Filed | * Before Calling Month Return Filed Please Allow |
| January and February | 8 weeks |
| March | 10 weeks |
| April | 12 weeks |
All Electronically Filed Returns 4 weeks * Additional time is required if you owe a State agency or the IRS, or if your return contains an error. |
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How to Pay Your Tax
If you owe additional tax, you can pay online by bank draft or credit or debit card using Visa or MasterCard. To pay online, go to the Department’s website at www.dornc.com and click on Electronic Services.
You can also pay by check or money order. Do not send cash. The Department will not accept a check, money order, or cashier’s check unless it is drawn on a U.S. (domestic) bank and the funds are payable in U.S. dollars. Make your check or money order payable to the N.C. Department of Revenue for the full amount due. Write “2007 D-400” and your name, address, and social security number on your payment. If you are filing a joint return, write both social security numbers on your payment in the order that they appear on the return. If you received a pre-addressed income tax booklet, also complete Form D-400V included with the booklet and enclose it with your return and payment in the envelope provided. Do not use Form D-400V if any of the preprinted information does not match what you entered on your return. Go to our website to generate a personalized D-400V with the correct information. If you use tax software to prepare your return, be sure to include with your return and payment the Form D-400V generated by the software package.
Estimated Income Tax
- You are required to pay estimated income tax if the tax shown due on your return, reduced by your North Carolina tax withheld and allowable tax credits, is $1,000 or more regardless of the amount of income you have that is not subject to withholding. Each payment of estimated tax must be accompanied by Form NC-40, North Carolina Individual Estimated Income Tax. If you paid estimated tax for 2007, forms for filing and paying your estimated tax for 2008 will be included in a pre-addressed forms packet mailed to you in February, 2008. If you fail to receive a forms packet or if you are filing estimated tax for the first time, contact any of our offices so that appropriate forms can be mailed to you. You can also pay your estimated tax online at www.dornc.com. Click on Electronic Services.
You should prepare your estimated tax carefully, both to avoid having to pay a large amount of tax when you file your return, and to avoid owing interest for underpayment of estimated income tax. Payment of estimated tax does not relieve you of your responsibility for filing a return if one is due.
Statute of Limitations
Generally, to receive a refund, your return must be filed within three years from the date the original return was due or within two years after the tax was paid, whichever date is later. However, special rules extending the time for filing refund claims beyond the normal three-year statute of limitations apply to overpayments attributable to (1) worthless debts or securities, (2) capital loss carrybacks, or (3) net operating loss carrybacks. For overpayments resulting from worthless debts or securities, the period of time for demanding an overpayment is seven years; for overpayments resulting from capital loss or net operating loss carrybacks, the period of time is three years from the due date of the return for the year in which the loss was incurred rather than three years from the due date of the return for the year to which the loss is carried back.
Amended Returns
You may amend your return by filing Form D-400X. Amended returns on which you owe additional tax are required to be filed and the tax paid within three years after the date on which the original return was filed or within three years from the date required by law for filing the return, whichever is later.
If changes are made to your federal return by the Internal Revenue Service, you must report the changes to the State by filing an amended return within six months from the date you receive the report from the Internal Revenue Service. If you do not amend your State return to reflect the federal changes and the Department of Revenue receives the report from the Internal Revenue Service, an assessment may be made by the Department within three years from the date of receipt of the report, and you forfeit your right to any refund which might have been due by reason of the changes.
Penalties and Interest
Failure to file penalty. Returns filed after the due date are subject to a penalty of 5 percent of the tax for each month, or part of a month, the return is late (minimum $5.00; maximum 25 percent of the additional tax). If you file your return late, figure the amount of the penalty and add it to the tax due.
Failure to pay penalty. Returns filed after April 15 without a valid extension are subject to a late-payment penalty of 10 percent of the unpaid tax. If you have an extension of time for filing your return, the 10 percent penalty will apply on the remaining balance due if the tax paid by the original due date of the return is less than 90 percent of the total amount of tax due. If the 90 percent rule is met, any remaining balance due, including interest, must be paid with the return before the expiration of any extension period to avoid the late-payment penalty. The minimum penalty is $5.00. If your payment is late, figure the amount of the penalty and add it to the tax due.
The late-payment penalty will not be assessed if the amount shown due on an amended return is paid with the return. Proposed assessments of additional tax due are subject to the 10 percent late-payment penalty if payment of the tax is not received within 45 days of the assessment.
Other penalties. There are other penalties for egligence, filing a frivolous return, and fraud. Criminal penalties also apply for fraud with intent to evade or defeat the tax and for willful failure to file a return, supply information, or pay the tax.
Collection Assistance Fee. Any tax, penalty, and interest not paid within 90 days after the debt becomes collectible is subject to a 20 percent collection assistance fee.
Interest. Interest is due on tax not paid by April 15, even though you may have an extension of time for filing your return. You may obtain the current interest rate from any of the Department’s offices. If you pay your tax late, figure the amount of interest due and include it with the tax and any applicable penalty.
Interest on the underpayment of estimated tax. Compute interest on any underpayment of estimated income tax on Form D-422, Underpayment of Estimated Tax by Individuals. Interest is not due if each payment equals 25 percent of the lesser of 90 percent (66 2/3 percent for farmers and fishermen) of the tax due on your current year’s return or 100 percent of the tax due on your previous year’s return. If interest is applicable, add the interest to the tax due, and include the full payment with your return. If a refund is due, subtract the amount of the interest from the refund.
N.C. Public Campaign Fund
You may designate $3.00 of the taxes you pay to this Fund. (Married couples filing a joint return may each make a spousal designation if their income tax liability is $6.00 or more.) The N.C. Public Campaign Fund provides an alternative source of campaign money to qualified candidates who accept strict campaign spending and fund-raising limits. The Fund also helps finance a Voter Guide with educational materials about voter registration, the role of the appellate courts, and the candidates seeking election as appellate judges in North Carolina. Three dollars from the taxes you pay will go to the Fund if you mark an agreement. Regardless of what choice you make, your tax will not increase, nor will any refund be reduced.
N.C. Political Parties Financing Fund
You may designate $3.00 of the taxes you pay for use by the Democratic or Republican Party. (Married couples filing a joint return may make a spousal designation only if their income tax liability is $6.00 or more.) If you do not wish to specify a party but wish to designate $3.00, fill in the “Unspecified” circle and the amount you designate will be distributed on a pro rata basis according to party voter registration. No political party with less than 1 percent of the total number of registered voters in the State will receive any of the designated funds.
United States Armed Forces Pay
If you are serving in the United States Armed Forces and your legal residence is North Carolina, you are liable for North Carolina income tax and North Carolina income tax should be withheld from your pay regardless of where you may be stationed. If you are a legal resident of another state stationed in North Carolina on military orders, you are not liable for North Carolina income tax on your military pay, but income from other employment, a business, or tangible property in North Carolina is subject to North Carolina income tax. If you are a military nonresident stationed in North Carolina with no North Carolina income but your spouse earned income in North Carolina, please see “Information for Part-Year Residents and Nonresidents” below.
Death of the Taxpayer
If you are the spouse or personal representative of an individual who died prior to filing a return, you may be required to file a return on the decedent’s behalf. If so, enter the date of death in the applicable box on Page 1 of Form D-400 to indicate the return is being filed for a deceased individual.
An Income Tax Return for Estates and Trusts, Form D-407, must be filed for an estate for the period from the date of death to the end of the taxable year if the estate had taxable income from North Carolina sources or income which was forthe benefit of a North Carolina resident, and the estate is required to file a federal return for estates and trusts.
If you are filing a return for an unmarried individual whodiedduringtheyear,enterthedateofdeathinthe applicable box and enter the name of the deceased andtheaddressoftheexecutororadministrator. The executororadministratorshouldfill in the circle under the deceased taxpayer information on Page 1 and sign the return. When filing a separate return for a decedent who was married at the time of death, enter the date of death, the name of the deceased, and the address of the surviving spouse. The surviving spouseshouldsignthereturn. Ineithercase,besure to enter the date of death in the space provided.
If you are a court-appointed representative, attach to the return a copy of the certificate that shows your appointment. A refund due on a return filed for a deceased taxpayer by a person other than a surviving spouse or a court-appointed representative will be mailed to the Clerk of Superior Court of the county in which the taxpayer resided.
Information for Part-Year Residents and Nonresidents
If you move your legal residence into or out of North Carolina during the tax year, you are a resident of two different states during two different periods of the tax year.
You are a nonresident if you maintain your legal residence in another state or country even though you may temporarily reside in North Carolina. If you reside in North Carolina for more than 18 days of a tax year, you are presumed to be a resident for income tax purposes in the absence of factual proof of residence in another state. However, your absence from North Carolina for more than 18 days raises no presumption that you are not a resident.
If you file a joint federal return and your spouse is a nonresident of North Carolina and had no North Carolina taxable income, you may file a joint State return. However, you still have the option of filing your State return as married filing separately. If you choose to file a separate North Carolina return, you must complete either a federal return as married filing separately reporting only your income, deductions, and exemptions or a schedule showing the computation of your separate federal taxable income and attach it to your North Carolina return. You must also include a copy of your joint federal return unless your federal return reflects a North Carolina address. Note: Itemized nonbusiness deductions of a husband and wife may be claimed by a spouse only if that spouse was obligated to pay the items and actually paid the amount during the year. In the case of a joint obligation (such as mortgage interest and real estate taxes), the deduction is allowable to the spouse who actually paid the item.
Part-year residents and nonresidents receiving incomefromNorthCarolinasourcesmustdetermine the portion of their federal taxable income that is subject to North Carolina income tax by completing Lines 49 through 51 on Page 4 of Form D-400. See the instructions for Lines 49 through 51 on Page 12.
A part-year resident receiving partnership income from a partnership doing business in North Carolina and in one or more other states must prorate his share of the partnership’s income attributable and not attributable to North Carolina between his periods of residence and nonresidence in accordance with the number of days in each period. Include on Line 49 your share of partnership income determined for the period of residence and your share of the partnership income attributable to North Carolina during the period of nonresidence.
If you have income from sources within another state or country while you are a resident of North Carolina and the other state or country taxes you on such income, you may be eligible to claim a tax credit on your North Carolina return. See “Credit for Tax Paid to Another State or Country” on Page 1 for additional information.
The references to line numbers on federal income tax forms were correct at the time of printing. If they have changed and you are unable to determine the proper line to use, please contact the Department of Revenue.
Lines 1 through 5 -Filing Status
Check the same filing status you checked on your federal return. Important: If either you or your spouse is a nonresident and had no North Carolina taxable income for the tax year, see page 4.
Line 6 -Federal Taxable Income
Enter your federal taxable income from your federal return. If federal taxable income is less than zero, you were required to enter zero on your federal return. On your North Carolina return, enter the negative amount and fill in the circle to indicate that the amount is negative. (Note: If you are completing a web fill-in form on the Department’s website, enter a minus sign to indicate a negative number.)
Line 13 - North Carolina Taxable Income
- If you were a resident of North Carolina for the entire year, enter the amount from Line 11 on Line 13.
- If you were a part-year resident or a nonresident you must complete Lines 49 through 51 and enter on Line 12 the decimal amount from Line 51. Multiply the amount on Line 11 by the decimal amount on Line 12 and enter the result on Line 13.
Part-year residents and nonresidents should read the instructions on Page 6 for additional information and complete the worksheet for Lines 49 and 50 on Page 12.
Line 14 - North Carolina Income Tax
To calculate your tax, use one of the following methods:
North Carolina Tax Table. Use the Tax Table beginning on Page 17 to determine your tax if your taxable income on Line 1 is less than $68,000. Be sure to use the correct column in the Tax Table. After you have found the correct tax, enter that amount on Line 14.
Tax Rate Schedule. Use the Tax Rate Schedule on Page 25 to calculate your tax if your taxable income is $68,000 or more. Enter the amount on Line 14.
Line 15 - Tax Credits
See Page 13 for information about tax credits. Complete Form D-400TC, Individual Tax Credits, if you are entitled to one or more of the credits.
Line 17 – Consumer Use Tax
Like all states that have a sales tax, North Carolina has a use tax on out-of-state purchases. The use tax applies to purchases made outside the State for use inside the State. Individuals in North Carolina are responsible for paying use tax on their out-of-state purchases.
An individual in North Carolina owes use tax on an out-of-state purchase when the item purchased is subject to the North Carolina sales tax and the retailer making the sale does not collect sales tax on the sale. Items that are subject to sales tax include computers and other electronic equipment, canned software, books, audio and video tapes, compact discs, records, clothing, appliances, furniture and other home furnishings, sporting goods, and jewelry. Out-of-state retailers include mail-order companies, television shopping networks, firms selling over the internet, and retailers located outside North Carolina. When an out-of-state retailer does not collect sales tax, the responsibility of paying the tax falls on the purchaser.
The use tax is calculated at the same rate as the sales tax, which for 2007, was 6.75% in all counties except Mecklenburg. In Mecklenburg County, the rate was 7.25%. If you paid another state’s sales or use tax on out-of-state purchases, that amount may be credited against the North Carolina use tax due. You may not claim a credit for sales tax or value-added tax paid to another country.
To calculate your North Carolina use tax, complete one of the Use Tax Worksheets below. Complete Worksheet 1 if you kept records of all of your out-of-state purchases. Complete Worksheet 2 if you did not keep records of all of your out-of-state purchases. Worksheet 2 has two parts; the first part is a calculation of the amount due on items that cost less than $1,000 each and the second part is a calculation of the amount due on items that cost $1,000 or more each. The first calculation is based on a Use Tax Table that reflects the estimated amount of use tax due by taxpayers with varying amounts of North Carolina taxable income. The estimated amount is .0675% (.000675) of North Carolina taxable income. If you believe the estimate from the table is too high for your out-of-state purchases, you may estimate what you think you owe.
You should report use tax on purchases of food subject to the reduced rate of tax on Form E-554 and use tax on purchases of boats and aircraft on Form E-555.
Use Tax Worksheet 1 : Taxpayers Who Have Records of All Out-of-State Purchases
| 1. Enter the total amount of out-of-state purchases including shipping and handling for 1/1/07 through 12/31/07................. | 1_______ |
2. Multiply Line 1 by 6.75% (.0675) or, if Mecklenburg County resident, 7.25% (.0725), and enter the amount.......... |
2_______ |
| 3. Enter the tax paid to another state on the purchases. This amount may not exceed the amount on Line 2 ..................... | 3_______ |
| 4. Subtract Line 3 from Line 2 and enter the result, rounded to the nearest whole dollar, here and on Form D-400, Line 17 ...................................... | 4_______ |
Use Tax Worksheet 2 : Taxpayers Who Do Not Have Records of All Out-of-State Purchases
| 1. For purchases of items that cost less than $1,000 See the Use Tax Table on the following page to estimate the use tax due based on your North Carolina taxable income shown on Form D-400, Line 13 and enter the amount.......................... |
1._______ |
| 2. For purchases of items that cost $1,000 or more 2a - Enter the total amount of purchases, including shipping and handling, of $1,000 or more for 1/1/07 through 2/31/07...... 2b - Multiply Line 2a by 6.75% (.0675) or, if Mecklenburg County resident, 7.25% (.0725), and enter the amount.............. |
2a.______ 2b.______
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| 3. Add Lines 1 and 2b and enter the total amount of use tax..... | 3._______ |
| 4. Enter the tax paid to another state on the purchases. This amount may not exceed the amount on Line 3......... | 4._______ |
| 5 .Subtract Line 4 from Line 3 and enter the result, rounded to the nearest whole dollar, here and on Form D-400, Line 17..... | 5._______ |
Lines 19a and 19b - N.C. Income Tax Withheld
Enter your North Carolina tax withheld on Line 19a. If you are married and you file a joint return, enter your North Carolina withholding on Line 19a and your spouse’s withholding on Line 19b. Do not include any income tax withheld by a state other than North Carolina or any other tax amounts that were withheld.
Be sure to attach your original or a copy of the original State wage and tax statements (Form W2), 1099 statements, or other statements verifying North Carolina tax withheld to your return. It is not necessary to attach 1099 statements on which no North Carolina income tax withheld is reported unless you are claiming a Bailey retirement deduction (See Line Instructions for Line 42). Wage and tax statements or 1099 statements generated by tax software programs cannot be used to verify North Carolina tax withholding.
Line 20 - Other Tax Payments
a -2007 Estimated Tax - Enter any estimated income tax payments for 2007 (including any portion of your 2006 refund that was applied to your 2007 estimated income tax). See Page 5 for additional information about estimated income tax.
b -Paid with Extension - If you filed an automatic extension of time, enter the amount of North Carolina income tax paid with the extension.
c -Partnership - If you are a nonresident partner, enter your share of the tax paid to North Carolina by the manager of the partnership on your distributive share of the partnership income. Include with your return a copy of Form NC K-1 for Form D-40 provided by the partnership to verify the amount claimed.
d -S Corporation - If you are a nonresident shareholder of an S corporation, enter your share of the income tax paid to North Carolina by an S corporation on your distributive share of the S corporation income. Include with your return a copy of Form NC K-1 for Form CD401S provided by the S corporation to verify the amount claimed.
Line 22a through 22c -Tax, Penalties, and Interest
a - If Line 18 is more than Line 21, you owe additional tax. Subtract Line 21 from Line 18 and enter the result on Line 22a.
b - Penalties and Interest - See “Penalties and Interest” beginning on Page 5 to determine if any other penalties apply to you or if you owe interest.
c - Interest on the Underpayment of Estimated Income Tax and Exceptions-You may owe interest if you underpaid your estimated tax for any payment period. You will not owe interest if you had no tax liability in the prior year or if this year’s tax liability, less any amount withheld and allowable tax credits, is less than $1,000. Complete Form D-422 to see if you owe interest. Enter the interest on Line 22c. The interest will increase your tax liability or reduce your overpayment. You do not have to attach Form D-422 or Form D-422A to your return; however, maintain the form for your records.
Exception to Underpayment of Estimated Tax:
- Enter an “F” in the box if you are a farmer or fisherman. You will not owe interest if you are a farmer or fisherman and pay the tax due by March 1, 2008. You are a farmer or fisherman if you received at least two-thirds of your gross income for the year from farming and fishing.
- Enter an “A” in the box if you completed Form D-422A, Annualized Income Installment Worksheet, in determining the amount to enter on Line 22c.
Line 23 - Pay This Amount
Add Lines 22a, 22b, and 22c and enter the total on Line 2. This is the total tax, penalties, and interest due. Mail your return and payment to the North Carolina Department of Revenue, P. O. Box 25000, Raleigh, North Carolina 27640-0640. Make your check or money order payable to the NC Department of Revenue. Important: The Department will not accept a check, money order, or cashier’s check unless it is drawn on a U.S. (domestic) bank and the funds are payable in U.S. dollars.
If you received a pre-addressed income tax booklet, be sure to use the payment voucher (Form D-400V) included in this booklet. However, do not use Form D-400V if any of the information does not match what you entered on your return. Go to our website to generate a personalized D-400V with the correct information.
You may also pay electronically. Visit our website at www.dornc.com formoreinformation. Inaddition, you may pay by cash at any of the Department’s offices. However, do not send cash by mail.
Line 24
If Line 21 is more than Line 18, you have overpaid your tax. Subtract Line 18 (and any amount shown on Line 22c) from Line 21 and enter the amount of the overpayment on Line 24.
Line 25 -Estimated Income Tax
If you have overpaid the tax, you may elect to have your refund applied to your estimated tax for the following year by entering the amount to be applied on Line 25. The election cannot be changed after you file your return. The last allowable date for making a 2008 estimated tax payment is January 15, 2009; therefore, to apply a portion of your refund to 2008 estimated tax, you must file your 2007 return by January 15, 2009.
Line 26- N. C. Nongame and Endangered Wildlife Fund
If you are due a refund, you may elect to contribute all or any portion of the refund to the North Carolina Nongame and Endangered Wildlife Fund. Your donations, which are tax deductible, provide most of the funds for conservation of our endangered species and native backyard wildlife.
If you wish to contribute to the fund, enter the amount of your contribution on Line 26. Your election to contribute to the fund cannot be changed after you file your return. If you are not due a refund, you may still contribute to this program by mailing your donation directly to the North Carolina Wildlife Resources Commission, 1722 Mail Service Center, Raleigh, North Carolina 27699-1722. Checks should be made payable to the Nongame & Endangered Wildlife Fund.
Line 28 -Amount to be Refunded
If you are due a refund, mail your return to the North Carolina Department of Revenue, P.O. Box R, Raleigh, North Carolina 27634-0001. Refunds of less than $1.00 are made only upon written request.
Adjustments to Federal Taxable Income
You must make certain adjustments to your federal taxable income (Line 6) in arriving at your North Carolina taxable income (Line 13). The law may require other adjustments that are not included in these instructions. Follow the Line Instructions below to determine the adjustments that apply to you.
Additions to Federal Taxable Income (Lines 29 -38)
Federal law requires that the federal standard deduction and personal exemption be increased each year if necessary for inflation. North Carolina law, however, does not have a similar provision.
If you claimed the standard deduction on your federal return, you must add to your federal taxable income the difference in the standard deduction for federal and State income tax purposes in figuring your North Carolina taxable income.
If you itemized deductions on your federal return, you must add to your federal taxable income the amount of any state and local income taxes or general sales taxes claimed as deductions on your federal return to the extent your itemized deductions exceed the standard deduction without the federal inflation adjustment.
You must also increase your federal taxable income by the difference in the personal exemption for federal and State income tax purposes.
Line 30
Most people can find their standard deduction amounts on Line 30 of Form D-400. However, if you are 65 or older or blind, OR you can be claimed as a dependent on another individual’s return, you must use the chart or worksheet on this page, whichever applies, to determine the amount to enter on Line 30. IMPORTANT: If you are (1) married filing a separate return for federal income tax purposes and your spouse itemizes deductions, or (2) a nonresident alien, or (3) filing a short-year return because of a change in your accounting period, you are not entitled to the standard deduction; therefore, enter 0 on Line 30. Note: A short-year return does not relate to a taxpayer who files a return as a part-year resident.
Line 31
Subtract Line 30 from Line 29 and enter the result (not less than zero).
Line 32 -State Tax Adjustment Worksheet
Enter the amount of the state and local income taxes or general sales taxes you deducted on Line 5 of Federal Schedule A and any foreign income taxes included on Line 8 of Federal Schedule A. If no state, local, or foreign taxes or general sales taxes were deducted, enter zero.
Important: If you were required to complete the federal Itemized Deductions Worksheet in the instructions for Federal Form 1040 and you answered “Yes” on Line 7 of the federal worksheet, complete the worksheet below to determine the amount to enter on Line 32.
| 1. Enter the state and local income taxes or general sales taxes from Line 5 of Federal Schedule A and any foreign income taxes included on Line 8 of Federal Schedule A ..... | 1.________ |
| 2. Enter the amount from Line 3 of the Itemized Deductions Worksheet in the instructions for Federal Form 1040.......... |
2.________ |
| 3. Divide Line 1 above by Line 2 above and enter the result as a decimal amount....... | 3.________ |
| 4. Enter the amount from Line 11 of the Itemized Deductions Worksheet in the instructions for Federal Form 1040.......... | 4.________ |
| 5. Multiply Line 4 above by the decimal amount on Line 3 above and enter the result (Round to nearest whole dollar).... | 5.________ |
| 6. Subtract Line 5 above from Line 1 above. Enter the result here and on Form D-400, Line 32............... | 6.________ |
Line 34 - Personal Exemption Adjustment Worksheet
If your federal adjusted gross income (Form 1040, Line 37; Form 1040A, Line 21; or Form 1040EZ, Line 4) is less than the following amount shown for your filing status (Married filing jointly/Qualifying widow(er) - $100,000; Head of Household - $80,000; Single - $60,000; Married filing separately - $50,000), complete Worksheet A. Otherwise, skip Worksheet A and complete Worksheet B.
A. 1. 1040 or 1040A filers
1040EZ SINGLE filers
1040EZ MARRIED FILING JOINTLY filers
STOP HERE and enter this amount on Form D-400, Line 34. |
1.__________ |
B. 2.1040 or 1040A filers
1040EZ SINGLE filers
1040EZ MARRIED FILING JOINTLY filers
IMPORTANT: If you were not required to complete the Deduction for Exemptions Worksheet in the instructions for Federal Form 1040 or 1040A, STOP HERE and enter this amount on Form D-400, Line 34. |
2.__________ |
| 3.Enter the amount from Line 10 of the Deduction for Exemptions Worksheet in the instructions for Federal Form 1040 or 1040A......................... | 3.__________ |
| 4.Enter the amount from Line 2 of the Deduction for Exemptions Worksheet in the instructions for Federal Form 1040 or 1040A ................................................ | 4.__________ |
| 5. Divide Line 3 above by Line 4 above and enter the result as a decimal amount..... | 5.__________ |
| 6. Multiply Line 2 above by the decimal amount on Line 5 and enter the . result here and on Form D-400, Line 34 (Round to nearest whole dollar) .......... | 6.__________ |
| 7. Multiply the amount on Line 2 above by .33 and enter the result here and on Form D-400, Line 34 (Round to nearest whole dollar).......................... | 7.__________ |
Line 35 - Interest Income
Enter the amount of interest received from notes, bonds, and other obligations of states and political subdivisions other than North Carolina if not included in federal taxable income. This includes exempt interest dividends received from regulated investment companies (mutual funds) to the extent such dividends do not represent interest from obligations of North Carolina or its political subdivisions.
Line 36 - Adjustment for Domestic Production Activities
The federal American Jobs Creation Act of 2004 allows a deduction equal to a portion of a taxpayer’s qualified production activities income. The deduction is claimed on Line 35 of Federal Form 1040. North Carolina does not allow the domestic production activities deduction. Therefore, if you claimed the deduction on your federal return, the amount claimed must be added to federal taxable income on Line 36, Form D-400.
Line 37 - Other Additions to Federal Taxable Income
- If you elected to exclude a lump-sum distribution from a retirement plan from your regular federal income tax computation and computed the tax separately, the amount of the lump-sum distribution must be added to federal taxable income.
- If you carry over a net operating loss from another year to the 2007 return, an addition is required for the amount of net operating loss carried to the 2007 year that is not absorbed and will be carried forward to subsequent years. Example: You incur a net operating loss of $75,000 in 2006. You carry the net operating loss to the 2007 federal return and deduct the entire loss in arriving at federal taxable income. Only $50,000 of the loss is absorbed and $25,000 is carried forward to subsequent years. To determine North Carolina taxable income, you must make an addition to federal taxable income of $25,000.
- If you are a shareholder in an S Corporation that paid built-in gains tax for federal income tax purposes, you must add to federal taxable income your share of the built-in gains tax that the S Corporation paid.
- You must add to taxable income any amount that was contributed to North Carolina’s National College Savings Program (NC 529 Plan) and deducted in a prior year that was later withdrawn and used for purposes other than the qualified higher education expenses of the designated beneficiary unless the withdrawal was due to the death or permanent disability of the designated beneficiary.
- If you qualified and elected to report your child’s unearned income on your federal return, you included only the child’s unearned income in excess of $1,700 in your federal taxable income. The difference in the child’s standard deduction of $500 and the amount of his income not included in your federal taxable income must be added to your federal taxable income in figuring your North Carolina taxable income. Example: Susan, age 10, received $1,800 in interest income in 2007. She had no other income. Her parents include $100 ($1,800-$1,700) of her income in their federal taxable income. In figuring their State taxable income, Susan’s parents must add $1,200 to federal taxable income in figuring their North Carolina taxable income.
Susan’s unearned income......................................$1,800
Amount included in parents’ federal income...............100
Amount not included in parents’ federal income....$1,700
Susan’s standard deduction........................................500
Addition to federal taxable income on parents’ return........$1,200
Deductions From Federal Taxable Income (Lines 39 - 48)
Line 39 - State Income Tax Refund
Enter the amount of any state or local income tax refund included on Line 10 of your federal return, Form 1040.
Line 40 - Interest From United States Obligations
Enter the amount of interest received from notes, bonds, and other obligations of the United States (such as U.S. savings bonds, treasury notes and bills, etc.) or United States possessions.
Line 41 - Taxable Portion of Social Security and RailroadRetirement Benefits
Social security and railroad retirement benefits are not subject to State income tax. Enter any Title 2 social security benefits received under the Social Security Act and any Tier 1 or Tier 2 railroad retirement benefits received under the Railroad Retirement Act that were included in federal taxable income. Railroad Retirement Act benefits include railroad unemployment insurance benefits and railroad sickness benefits.
Line 42 - Retirement Benefits Received by Vested Government Retirees (Bailey Settlement)
As a result of the North Carolina Supreme Court’s decision in Bailey v. State of North Carolina, North Carolina may not tax certain retirement benefits received by retirees (or by beneficiaries of retirees) of the State of North Carolina and its local governments or by United States government retirees (including military). The exclusion applies to retirement benefits received from certain defined benefit plans, such as the North Carolina Teachers’ and State Employees’ Retirement System, the North Carolina Local Governmental Employees’ Retirement System, the North Carolina Consolidated Judicial Retirement System, the Federal Employees’ Retirement System, or the United States Civil Service Retirement System, if the retiree had five or more years of creditable service as of August 12, 1989. The exclusion also applies to retirement benefits received from the State’s §401(k) and §457 plans if the retiree had contributed or contracted to contribute to the plan prior to August 12, 1989. The exclusion does not apply to local government §457 plans or to §403(b) annuity plans. Benefits from other State, local, and federal retirement plans may or may not be excluded depending on rulings in the Bailey case. The exclusion does not apply to retirement benefits paid to former teachers and state employees of other states and their political subdivisions.
A retiree entitled to exclude retirement benefits from North Carolina income tax should claim a deduction on Line 42 for the amount of excludable retirement benefits included in federal taxable income. Even if all your retirement is excludable under Bailey, you must still file a North Carolina return if you meet the minimum gross filing requirements on Page 4. Important: If you qualify for this deduction, you do not qualify for the deduction for retirement benefits of up to $4,000 for the same federal, state, and local government retirement benefits. A copy of Form 1099-R or W-2 received from the payer must be attached to the return to support the deduction.
Line 43 - Other Retirement Benefits
You may deduct a portion of other retirement benefits included in federal taxable income. Retirement benefits are amounts paid by an employer to a former employee or to a beneficiary of a former employee under a written retirement plan established by the employer to provide payments to an employee or beneficiary after the employee ends employment with the employer where the right to receive the payments is based upon the employment relationship. For self-employed individuals, retirement benefits are amounts paid to an individual (or beneficiary) under a written retirement plan established by the individual to provide payments after self-employment ends.
Retirement benefits also include amounts received from an individual retirement account or from an individual retirement annuity (IRA) and long-term disability benefits received under the Disability Income Plan of North Carolina.
Retirement benefits do not include short-term disability benefits from the Disability Income Plan of North Carolina or distributions paid to an employee from an employer’s retirement plan because of a change in the structure of a corporate employer.
Federal, State, and Local Government Retirement Benefits. (Important: The following instructions apply to you if you received retirement benefits as a former employee of the State of North Carolina or any of its local governments or as a former employee of the federal government and you did not have five years of service with the government as of August 12, 1989, or if you received retirement benefits as a former employee of any other state or from a local government §457 plan. Otherwise, see the Line 42 instructions on this page.) If you received retirement benefits from one or more federal, state, or local government retirement plans, you may deduct the amount included in federal taxable income or $4,000, whichever is less. Married individuals filing a joint return where both received such retirement benefits may each deduct up to $4,000 for a potential deduction of $8,000.
Private Retirement Benefits. If you received retirement benefits from one or more private retirement plans other than federal, state, or local government retirement plans, you may deduct the amount included in federal taxable income or $2,000, whichever is less. Married individuals filing a joint return where both received such retirement benefits may each deduct up to $2,000 for a potential deduction of $4,000.
The total retirement benefits deduction may not exceed $4,000 per taxpayer. For married couples filing a joint return where both spouses received retirement benefits, the deduction applies separately to each, so that the maximum deduction on a joint return is $8,000.
If you included retirement benefits in federal taxable income, complete the Retirement Benefits Worksheet below and enter the result on Form D-400, Line 43.
Retirement Benefits Worksheet
| You | Your Spouse | |
| 1. Enter the federal, state, or local government retirement benefits included in federal taxable income not to exceed $4,000 for each taxpayer who received government retirement benefits............ |
1.________ | _________ |
| 2. Enter the private retirement benefits included in federal taxable income not to exceed $2,000 for each taxpayer who received retirement benefits |
2.________ | _________ |
| 3. Add Lines 1 and 2 and enter the total here not to exceed $4,000 for each taxpayer......... | 3.________ | _________ |
| 4. Add the amounts on Line 3 and enter the total here and on Form D-400, Line 43....... | 4.________ | _________ |
| Important: If you claim a deduction on Line 42 for retirement benefits received as a result of the Bailey settlement, you cannot claim the deduction of up to $4,000 for the same federal, state, or local government retirement benefits. | ||
Line 44 - Severance Wages
You may deduct up to $35,000 of any severance wages you received as a result of your permanent involuntary termination from employment through no fault of your own. The severance wages deducted as a result of the same termination may not exceed $35,000 for all taxable years in which the wages were received. “Stay on pay” does not qualify for the deduction.
Severance wages do not include payments that represent compensation for past or future services. Compensation for past or future services includes payment for accumulated sick leave, vacation time, other unused benefits, bonuses based on job performance, or payments in consideration of any agreement not to compete.
Line 45 - Adjustment for Additional First-yearDepreciation Added Back in2002, 2003, and 2004
North Carolina did not adopt the additional first-year depreciation provisions in the federal Jobs Creation and Worker Assistance Act of 2002 or the federal Jobs and Growth Tax Relief Reconciliation Act of 2003. Instead, you were required to add back on the State return for 2002, 2003, and 2004 a certain percentage of the first-year depreciation claimed on the federal return for the applicable year. Any amount of additional first-year depreciation added to federal taxable income on your 2002, 2003, or 2004 State return may be deducted in five equal installments beginning with the tax return for 2005. Therefore, determine the total amount of first-year depreciation added back on your 2002, 2003, and 2004 State returns and enter 20 percent of the total on Line 45.
Line 46 - Contributions to NC College Savings Program
You may deduct up to $2,500 ($5,000 on a joint return) for contributions made during the taxable year to an account in the Parental Savings Trust Fund of the State Education Assistance Authority (North Carolina’s National College Savings Program NC 529 Plan), regardless of your income level.
Line 47 - Other Deductions From Federal Taxable Income
- You may deduct $250 if you were an unpaid volunteer firefighter or an unpaid volunteer rescue squad worker who attended at least 36 hours of fire department drills and meetings or 36 hours of rescue squad training and meetings during 2007. An individual may not claim a deduction as both a volunteer firefighter and a volunteer rescue squad worker. In the case of a married couple filing a joint return, each spouse may qualify separately for the deduction.
- If you claim the Hope or Lifetime Learning tax credit on your federal return in lieu of the deduction for higher education expenses allowed under Section 222 of the Internal Revenue Code, you may claim a deduction of up to $4,000 for such expenses on the State return.
- If you itemized your deductions and claimed the mortgage interest tax credit on your federal return because you participated in the mortgage credit certificate (MCC) program, you may deduct the amount shown on Line 3 of Federal Form 8396.
Lines 49 and 50 - Part-Year Resident/Nonresident Worksheet
If you were a part-year resident of North Carolina during the taxable year 2007 OR if you were a nonresident and you received income from North Carolina sources, you must complete the worksheet below to determine the portion of federal taxable income that is subject to North Carolina income tax. After you complete the worksheet, enter the amount from Column B, Line 29 on Form D-400, Line 49. Enter the amount from Column A, Line 29 on Form D-400, Line 50.
In Column B, enter only the portion of the North Carolina additions and deductions shown in Column A that are applicable to North Carolina. For example, if you received interest income from United States obligations of $1,200 evenly during the year and you became a North Carolina resident on July 1, you should enter $1,200 on Line 21 of Column A and $600 on Line 21 of Column B.
Important Reminders
- Do not submit photocopies of the return. Submit original forms only. Do not use any prior year forms to file a current year return.
- Double-check your figures, including your social security number. Accuracy speeds processing of your tax return.
- Claim the same filing status you claimed on your federal return. (Nonresidents see instructions on page 6.) If you do not fill in the applicable circle to indicate your filing status, processing of your return will be delayed.
- Sign and date your return on Page 4. If you file a joint tax return, both you and your spouse must sign the return. Staple the originals or copies of the original State wage and tax statements in the top left-hand corner of the return.
- You must include a copy of your federal return with your North Carolina return unless your federal return reflects a North Carolina address or you file electronically.
- If you owe additional tax and you received a pre-addressed income tax booklet, use the payment voucher (Form D-400V) included with the booklet to make your payment. Note: The Department will not accept a check, money order, or cashier’s check unless it is drawn on a U.S. (domestic) bank and the funds are payable in U.S. dollars. Enter your social security number(s) in the boxes provided on the voucher. Do not use Form D-400V if any of the preprinted information does not match what you entered on your return. Do not staple, tape, or otherwise attach your payment or voucher to your return or to each other. Instead, just put them loose in the envelope. In lieu of using the payment voucher, you may pay your tax liability online by bank draft or credit or debit card using Visa or MasterCard. Visit our website at www.dornc.com for details.
What you should send us...
- Your North Carolina income tax return (Form D-400) along with Form D-400TC if you claimed a tax credit
- W-2s and 1099s showing North Carolina tax withheld and a 1099R if you claimed a Bailey retirement deduction
- A check or money order payable to “N.C. Department of Revenue” if you have a balance due. (Note: The Department will not accept a check, money order, or cashier’s check unless it is drawn on a U.S. (domestic) bank and the funds are payable in U.S. dollars.) If you received a pre-addressed income tax booklet, include the completed payment voucher (Form D-400V).
- Other North Carolina forms or supporting schedules that are required according to the instructions (Please do not send copies of completed worksheets from the instruction booklet or other unnecessary attachments.)
- A copy of the tax return you filed in the other state if you’re claiming a tax credit for tax paid to another state
Important Toll Free Telephone Numbers
Automated Refund Inquiry Line.......... 1-877-252-4052
Taxpayer Assistance and Forms........ 1-877-252-3052
Assistance and Forms are also available at any of the Department of Revenue Service Centers and from our website at www.dornc.com.
Frequently Asked Questions
Call 1-877-252-3052 (toll free) and select the Individual Income Tax option to hear recorded information on many frequently asked individual income tax questions. Some of the questions include information on the following:
- Filing Requirements
- Tax Credits
- Information for Military Personnel
- Bills
- Payments
This service is available 24 hours a day, seven days a week.
Assistance For Disabled, Low Income, and Senior Citizen Taxpayers
If you are disabled, have a low income, or are a senior citizen, income tax returns can be prepared free of charge through the VITA (Volunteer Income Tax Assistance)/TCE (Tax Counseling for the Elderly) programs. For locations and dates of assistance, taxpayers in North Carolina can call the Internal Revenue Service toll free, 1-800-829-1040, weekdays.
Mailing Addresses
If you are due a refund:
N.C. Department of Revenue
P.O. Box R
Raleigh, N.C. 27634-0001
If you are not due a refund:
N.C. Department of Revenue
P.O. Box 25000
Raleigh, N.C. 27640-0640
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