Federal law requires that the federal personal exemption be increased each year if necessary for inflation. North Carolina law does not have a similar provision. Because federal taxable income is the starting point for determining North Carolina taxable income, you must make an adjustment on the North Carolina return for the difference in the State and federal personal exemption. The adjustment will increase your taxable income.

The amount of the adjustment depends upon your filing status, your income, and the number of exemptions you claimed.

For tax year 2007, you must add back $900 ($1,000 for tax year 2008) for each exemption claimed on your federal return if your federal adjusted gross income is less than:

If your federal adjusted gross income is more than the amounts shown above, you must add back $1,400 for tax year 2007 ($1,500 for tax 2008) for each exemption claimed on the federal return.

Complete the applicable State Personal Exemption Adjustment Worksheet on page 10 of the Form D-401 instructions. Be sure to enter the amount of the adjustment on line 7 of Form D-400. Not entering an amount on line 7 may delay processing of your return.

Click on the Tax Forms tab at the top of this page and select Individual Income / Form D-401, to view the instructions. To order the instruction booklet, call the forms line toll-free at 1-877-252-3052 or visit a service center.

Last modified on: 01/02/08 03:27:40 PM.