Senate Bills 257 and 595 include tax changes that may affect individuals, businesses, and general tax compliance. Outlined are a few highlights.
Personal Income Tax Rate Reductions (SB 257)
North Carolina legislators are continuing the ongoing reduction of personal income tax rates. For 2026, the tax rate remains 3.99%. Tax years 2027 and
beyond will follow the schedule below:
2027 – 2029: 3.49%
2030 – 2032: 3.24%
2033 and beyond: 2.99%
The bill also includes revenue targets that could trigger additional reductions, potentially reducing the rate as low as 2.49%.
Internal Revenue Code Conformity (SB 595)
The bill updates North Carolina’s conformity to the Internal Revenue Code (IRC) effective July 5, 2025. Prior to the passage of this bill, the conformity date was January 1, 2023. This ensures that tax provisions passed in the July 4, 2025 “One Big Beautiful Bill” (OBBBA) will apply to North Carolina, except as specifically decoupled. All previous decoupling provisions remain in effect.
For example, bonus depreciation will continue to be added back at 85 percent of the federal bonus deduction claimed and deducted ratably over five tax years.
Gambling Losses (SB 257)
Under OBBBA, gambling losses are allowed up to 90% of earnings starting with tax year 2026. For 2025, losses up to 100% of earnings are allowed. North Carolina will now allow a comparable deduction for individuals who choose to itemize deductions. Notably, this deduction is allowed as long as the losses are not already included in adjusted gross income (AGI). Typically, only professional gamblers have gambling losses included in AGI. The North Carolina deduction is retroactive to tax year 2025. Taxpayers who already filed a 2025 North Carolina return and are affected by this change may need to amend their 2025 tax return to claim the deduction.
Research & Experimental Expenditures Decoupling (SB 595)
Under federal tax law, businesses are allowed to immediately expense research and experimental expenditures (R&E). North Carolina’s provisions require that 80% of the additional federal deduction be added back to determine North Carolina taxable income. The add-back amount can be deducted over the following four taxable years (25% per year). For qualified small taxpayers that are allowed to amend prior returns are also subject to the 80 percent addback.
Hurricane Helene Disaster Relief (SB 595)
Previous disaster relief provisions have been expanded to include interest relief for underpayment of income, franchise, and withholding taxes for taxpayers in designated counties from September 25, 2024 through September 25, 2025. The NCDOR will use its records to identify eligible taxpayers and automatically issue refunds. Taxpayers can also submit Form NC-5502 or call the NCDOR at 1-877-252-3052 during normal business hours. Additional information, including detailed eligibility criteria, can be found on the NCDOR website.
Centralized Partnership Audit Regime Conformity (SB 595)
Senate Bill 595 better aligns North Carolina and federal provisions relating to taxes due following an audit. New provisions allow taxes to be paid by the partnership rather than at the individual taxpayer level. Taxpayers can opt out of this treatment at the federal level, assuming all partners are eligible.
NC Department of Revenue is expected to issue guidance on some of the changes outlined in the near future.
If you have questions regarding North Carolina tax changes that affect your personal financial picture, please contact the professionals at Gilliam Bell Moser today.
This article is not intended to be tax advice.
