How do I claim the North Carolina credit for taxes paid to another state?

If you are a North Carolina resident and the same income is taxed by both North Carolina and another state or country, you may qualify for a credit for income taxes paid to the other jurisdiction. This credit helps reduce double taxation of the same income. 

The credit is generally calculated automatically when:

• You prepare a North Carolina resident return, and
• You prepare the corresponding nonresident return for the other state within the same account.

Who Qualifies?

You may qualify for the credit if:

• You are a North Carolina resident, and
• The same income is taxed by both North Carolina and another state or country.

Examples may include:

• Wages earned in another state while a North Carolina resident.
• Partnership or S corporation income taxed by another state.
• Income earned in a foreign country and also taxed by North Carolina.

Who Does Not Qualify?

The credit is not allowed for:

• Income taxes paid to the federal government.
• Taxes paid to a city, county, municipality, or other political subdivision.
• Nonresident North Carolina returns.

Credit Limitation

Important: The credit cannot exceed the portion of North Carolina income tax attributable to the income that was taxed by both jurisdictions. The allowable credit is generally limited to the lesser of:

• The tax paid to the other state or country, or
• The North Carolina tax attributable to the same income.

Because of this limitation, the credit may be less than the total tax paid to the other jurisdiction. 

Part-Year Residents

If you are filing a Part-Year Resident North Carolina return, the credit is generally not calculated automatically. You must enter the required information manually in the North Carolina Credits section. 

Part-year residents may claim the credit only when:

• The North Carolina return and the other state's return cover the same period, and
• The same income is taxed by both jurisdictions.

When completing the credit calculation, refer to:

• The other state's return,
• The tax liability reported by that state, and
• The taxable income reported by that state.

Foreign Country Taxes

North Carolina may allow a credit for qualifying income taxes paid to a foreign country when the same income is also subject to North Carolina income tax. 

The credit is generally subject to the same limitations that apply to taxes paid to another state. Supporting documentation should be retained with your tax records. 

Documentation Requirements

The North Carolina Department of Revenue may request documentation supporting your credit claim. Documentation may include:

• A copy of the other state's income tax return.
• A copy of a foreign country tax return, if applicable.
• Schedules showing how the tax was calculated.
• Supporting wage, withholding, or income statements.

Keep copies of all supporting documents with your tax records. 

Program Entry

If you are filing a Part-Year Resident return and must enter the information manually:

Navigation

1. State
2. Edit North Carolina (three dots)
3. Credits
4. Credit for Taxes Paid to Another State or Country
5. Enter the required information from the other jurisdiction's tax return

Note: Repeat these steps for each state or country for which you are claiming the credit