Credit for Income Tax Paid To Another State or Country

If you are a resident of North Carolina and have income reportable to North Carolina that is also being taxed by another state or country, you may be entitled to claim a tax credit on your North Carolina return. This tax credit gives you relief from being taxed twice on the same income. It will either increase your refund or decrease the tax you owe.

The credit is available to North Carolina residents who receive income from sources in another state or country that is taxed by North Carolina and the other state or country. No credit is allowed for income taxes paid to a city, county, or other political subdivision of a state or to the federal government.

After completing the return of the other state, complete your North Carolina return and include all income from inside and outside the State. Compute your tax as though no credit is being claimed. Complete Part 1 of Form D-400TC to determine the allowable tax credit. A common mistake is to enter on line 6 of Part 1 the total tax withheld by the other state or country. The amount entered on line 6 of Form D-400TC must be the tax paid to the other state or country less any refund received, or expected to be received, from the other state or country. The credit cannot be more than your North Carolina tax liability; therefore, you must complete Part 3 of Form D-400TC to limit the credit to the tax liability.

If you claim credit for tax paid to more than one state or country, use the worksheet on page 15 of the instructions to determine the tax credit allowable. Determine the total credits for all states by adding the amount on line 7 of each worksheet and enter the total on Form D-400TC, line 7a. Do not fill in lines 1 through 6 of the Form D-400TC if you are claiming a credit for tax paid to more than one state or country. Be sure to use separate worksheets to determine the separate credits for each state or country.

Attach the Form D-400TC to your North Carolina return with a copy of the tax return filed with the other state or country. You should also include proof of payment such as a wage and tax statement or a copy of the check or receipt if you paid tax to the other state or country.