North Carolina has a state income tax that applies to wages, investment income, and other earnings
Yes, North Carolina charges state income tax. The current rate is a flat 4.99 percent on all taxable income, regardless of how much you earn. This rate applies to wages from a job, self-employment income, interest, dividends, and retirement distributions. North Carolina also taxes capital gains at the same rate.
The state income tax is separate from federal income tax. You will owe both unless you fall into a category that is exempt from state tax — which is rare and usually applies only to certain government employees or religious groups with specific status.
North Carolina does not have a local income tax on top of the state rate, so the 4.99 percent is the only state-level income tax you will pay, no matter which city or county you live in.
Key Takeaways
- North Carolina taxes income at a flat rate of 4.99 percent, with no variation based on income level or filing status.
- The state taxes wages, self-employment income, investment gains, and retirement withdrawals at the same rate.
- North Carolina has no local income tax, so you do not owe additional state-level tax based on where you live within the state.
- You must file a North Carolina state return if you earned income in the state and meet the filing threshold, even if you owe no federal tax.
Who has to file a North Carolina state return
You must file a North Carolina state return if you earned income in the state and your income exceeds the filing threshold. For the 2023 tax year, the threshold is $12,200 for single filers and $24,400 for married couples filing jointly. These thresholds are adjusted each year for inflation.
If you worked in North Carolina but live in another state, you still owe North Carolina tax on the income you earned there. You may also owe tax to your home state, depending on its rules. Most states have agreements to prevent double taxation, but you should check with both states or a tax preparer to be sure.
Even if your income is below the threshold, you may want to file if you had taxes withheld from your paychecks. Filing allows you to claim a refund of the overpayment.
How North Carolina income tax is withheld from your paycheck
Your employer withholds North Carolina state income tax from your paycheck based on the W-4 form you fill out when you start a job. The amount withheld depends on your filing status, the number of dependents you claim, and any additional withholding you request.
If you think too much or too little is being withheld, you can submit a new W-4 to your employer. The IRS provides a withholding calculator on its website that can help you figure out the right amount. Adjusting your withholding during the year is faster than waiting for a refund or owing a large bill at tax time.
Self-employed people and those with income that is not subject to withholding may need to make quarterly estimated tax payments to North Carolina. The Department of Revenue website has a schedule and payment instructions.
What income is taxed and what is not
North Carolina taxes most types of income: wages, salaries, tips, self-employment earnings, interest, dividends, capital gains, rental income, and distributions from retirement accounts. Social Security benefits are generally not taxed by North Carolina, though some retirees may owe tax on a portion of their benefits depending on their total income.
Certain types of income are exempt or partially exempt. Military retirement pay is not taxed. Distributions from a 529 college savings plan are not taxed if used for may have access to education expenses. Some pension income may be excluded if you meet age and service requirements, though the rules are complex and depend on when you retired.
If you are unsure whether a specific type of income is taxable, the North Carolina Department of Revenue publishes guidance on its website, or you can contact the department directly by phone or through its online portal.
Filing your North Carolina state return
You can file your North Carolina return on paper or electronically. The state accepts returns filed through the IRS Free File program if you meet the income limits, and it also accepts returns prepared by tax software or a tax preparer. The important date to file is the same as the federal important date, usually April 15.
If you file your federal return electronically, you can file your state return at the same time. Many tax software programs allow you to prepare both returns together and submit them in one step. If you file on paper, mail your return to the address shown in the instructions.
If you cannot file by the important date, you can request an extension from the IRS, which automatically extends your North Carolina filing important date as well. An extension gives you until October 15 to file, but it does not extend the important date to pay any tax you owe — that is still due by April 15.
Deductions and credits available in North Carolina
North Carolina allows a standard deduction that is adjusted each year. For the 2023 tax year, the standard deduction is $10,750 for single filers and $21,500 for married couples filing jointly. You can take the standard deduction or itemize deductions if you have enough may have access to expenses, though most filers benefit from the standard deduction.
The state also offers several tax credits. The Earned Income Tax Credit is available to low-income working people and is often larger than the federal credit. North Carolina also has credits for child and dependent care expenses, education expenses, and property tax paid. Some credits are refundable, meaning you can receive money back even if you owe no tax.
To claim a credit, you must report it on your state return. Tax software and tax preparers can help you identify which credits you may be may have access to to claim.
What happens if you do not pay or file on time
If you owe North Carolina income tax and do not pay by the important date, the state charges interest and penalties. Interest accrues daily from the due date until you pay. The penalty for failure to pay is typically 0.5 percent of the unpaid tax per month, up to a maximum of 25 percent. If you file late without a valid reason, there is an additional penalty of 5 percent per month, up to 25 percent.
If you cannot pay the full amount by the important date, you can request a payment plan from the North Carolina Department of Revenue. The department also offers an online payment portal where you can pay by credit card, debit card, or electronic bank transfer. Paying what you can by the important date reduces the penalties and interest that accrue on the remaining balance.
If you owe a large amount and cannot pay, contact the Department of Revenue to discuss your options. The state may be willing to work with you on a payment arrangement, especially if you have a legitimate reason for the delay.
Frequently Asked Questions
Does North Carolina tax retirement income differently than wages?
North Carolina taxes most retirement income at the same 4.99 percent rate as wages. However, military retirement pay is exempt, and some pension income may be excluded if you meet age and service requirements. Social Security is generally not taxed. The rules vary depending on the type of retirement income and when you retired, so check the Department of Revenue website or contact the department if you are unsure.
What if I moved to North Carolina partway through the year?
You owe North Carolina tax only on income you earned while you were a resident of the state. If you moved in July, for example, you owe tax on income earned from July onward. You will also owe tax to your previous state on income earned there. Both states should allow you to claim a credit for taxes paid to the other state to avoid double taxation.
Can I file my North Carolina return without filing a federal return?
Yes, you can file a North Carolina return even if you do not file a federal return, as long as your income exceeds the state filing threshold. However, if you had taxes withheld, filing both returns allows you to claim any refund you are owed. Many people file both returns together because the information overlaps and it is simpler to do them at the same time.
Is there a penalty for underpayment of estimated taxes?
Yes. If you are self-employed or have income not subject to withholding and you do not pay enough in estimated taxes throughout the year, North Carolina may charge a penalty. The penalty is waived if you paid at least 90 percent of your current year tax or 100 percent of your prior year tax through withholding and estimated payments. The Department of Revenue can calculate whether you owe a penalty.