STATE TAX DEDUCTION FOR EMPLOYEE RETENTION CREDIT

Because the federal Employee Retention Credit was applied against federal employment taxes and not federal income tax, provisions in state law prevented NC businesses from deducting wages associated with the ERC. NCACPA argued that the law denied the taxpayer a full deduction for an ordinary and necessary business expense without giving the taxpayer—as the federal government did—an alternative tax benefit. Lawmakers agreed and amended the law to allow employers to deduct wages associated with the ERC in calculating their state income tax. 

March 2022