TJT Certified Public Accountants

Significant Change for North Carolina Pass-Through Entity Taxation

A recent North Carolina legislative change (Senate Bill 105) allows certain pass-through entities (Partnerships and S-Corporations) to pay and deduct North Carolina state income taxes at the pass-through entity level.  This workaround to the Federal $10,000 state and local tax (SALT) individual itemized deduction limit is an elective change, effective for tax years beginning January 1, 2022.  Similar to taxes paid by C-corporations, the pass-through entity state taxes should be paid on a quarterly basis with estimated tax payments.  The NC tax rate for the pass-through entity tax for year 2022 will be 4.99%, the same as the individual income tax rate.


The North Carolina election to be taxed at the pass-through entity level will be made on an annual basis.  Once the election is made for that year, it cannot be revoked.  Partnerships that have a partner who is not an individual, estate, trust or exempt organization are not allowed to make this election. Publicly-traded partnerships are also excluded from the elective treatment.  North Carolina joins twenty other states that have recently adopted similar pass-through entity taxes as SALT limitation workarounds.  If you believe this election would benefit your partnership or S-corporation, please contact our office.