Update of State Treatment of EGTRRA’s Estate Tax Provisions

In an announcement in April 2002, the Department addressed the impact on North Carolina estates of the enactment of the federal Economic Growth and Tax Relief Reconciliation Act of 2001. The act made significant changes to the federal estate tax laws by increasing the amount excluded from federal estate tax and by phasing out the state death tax credit over four years beginning in 2002.

The 2002 General Assembly enacted legislation to address the changes in the federal act as they pertain to North Carolina estate tax. The legislation conforms North Carolina’s exemption limits to the federal exemption limits ($1,000,000 in 2002 and 2003). This ensures that no North Carolina estate tax is due if no federal estate tax is due. For federal purposes, the state death tax credit is phased out by reducing the credit 25% in 2002, 50% in 2003, and 75% in 2004. The credit is repealed entirely in 2005. The General Assembly did not elect to conform to the phase out of the state death tax credit. Therefore, the North Carolina estate tax is equal to the state death tax credit for federal purposes before applying the percentage reduction to the federal credit.

The North Carolina Estate Tax Return, Form A-101, has been revised to reflect the changes above. You can download a copy of Form A-101 by selecting Individual Income under the Tax Forms tab above.