Yes, North Carolina has a state income tax

North Carolina charges state income tax on wages, self-employment income, investment gains, and other earnings. The state tax rate is a flat 4.99% as of 2024, meaning everyone pays the same percentage regardless of income level. This is separate from federal income tax, which you also owe to the U.S. government.

If you work in North Carolina or live there, you will likely owe state income tax unless your income falls below the filing threshold. The threshold depends on your age, filing status, and type of income — a single person under 65 with only wage income typically does not file state taxes if they earned less than about $12,750 in 2024, but this amount changes yearly and varies by situation.

Key Takeaways

  • North Carolina's state income tax rate is a flat 4.99% on all taxable income, with no brackets that increase the rate for higher earners.
  • You must file a North Carolina state tax return if your income exceeds the filing threshold, which varies by age and filing status but is roughly $12,750 for a single person under 65.
  • North Carolina taxes wages, self-employment income, interest, dividends, and capital gains, but offers a standard deduction that reduces the income you actually pay tax on.
  • If you work in North Carolina but live in another state, you may owe North Carolina tax on wages earned in the state, depending on reciprocal tax agreements.
  • You can claim the federal standard deduction on your North Carolina return, and the state also allows certain deductions like retirement income exclusions for those over 59½.

How North Carolina income tax works

North Carolina uses a standard deduction to reduce the income you pay tax on. For 2024, the standard deduction is $10,750 for a single filer under 65, and $13,500 for those 65 and older. If you are married filing jointly, the deduction is higher. You subtract this amount from your total income, and you only pay the 4.99% tax on what remains.

For example, if you earned $35,000 as a single person under 65, you would subtract the $10,750 standard deduction, leaving $24,250 in taxable income. You would owe 4.99% of $24,250, which is about $1,210 in state tax. This is before any credits or other adjustments.

North Carolina also allows you to exclude certain types of income from taxation. If you are over 59½, you can exclude up to $4,200 per year in retirement income from pensions, 401(k) withdrawals, or IRAs. Military retirement pay is also excluded. These exclusions reduce your taxable income further.

Who has to file a North Carolina tax return

You must file a North Carolina state return if your gross income exceeds the filing threshold for your situation. The threshold is not the same as the standard deduction — it is lower, so some people file even though they owe no tax. Filing thresholds for 2024 are roughly $12,750 for a single person under 65, but they are higher for those 65 and older, and different for married couples, heads of household, and other filing statuses.

If you are self-employed, you must file if your net self-employment income is $400 or more, even if your total income is below the threshold. You also must file if you had income withheld from your paychecks and expect a refund, or if you owe estimated taxes.

The safest approach is to file if you earned any income during the year, because filing when you do not owe anything costs nothing and may result in a refund of taxes withheld. The North Carolina Department of Revenue publishes updated filing thresholds each year on its website.

Filing your North Carolina income tax return

You file your North Carolina state return using Form D-400, the Individual Income Tax Return. You can file on paper by mailing it to the North Carolina Department of Revenue, or you can file electronically through the state's online system or through tax software that supports North Carolina returns.

Most tax software packages — including free options like IRS Free File — allow you to file your North Carolina return at the same time as your federal return. If you use a tax preparer, they will handle the state return as part of their service. The filing important date is the same as the federal important date, usually April 15.

You will need your Social Security number, W-2 forms from your employer, 1099 forms for any other income, records of deductions or credits you claim, and information about any taxes already withheld. If you are self-employed, you will also need records of business income and expenses.

Income tax withholding from paychecks

If you work as an employee in North Carolina, your employer withholds state income tax from your paycheck based on the W-4 form you complete. The amount withheld depends on your income, filing status, and the number of dependents you claim. You can adjust your withholding at any time by submitting a new W-4 to your employer.

If too much tax is withheld, you will receive a refund when you file your return. If too little is withheld, you will owe when you file. To avoid a large bill at tax time, you can increase your withholding by claiming fewer dependents on your W-4, or you can make estimated tax payments if you have income that is not subject to withholding, such as self-employment income or rental income.

Special situations: out-of-state workers and reciprocal agreements

If you live in another state but work in North Carolina, you generally owe North Carolina income tax on the wages you earn in the state. However, North Carolina has reciprocal tax agreements with some neighboring states, meaning residents of those states who work in North Carolina may not owe North Carolina tax.

North Carolina has reciprocal agreements with Virginia and South Carolina. If you live in one of these states and work in North Carolina, you may be exempt from North Carolina income tax, though you would still owe tax to your home state. You must file a Certificate of Nonresidence with your North Carolina employer to claim this exemption. The rules are specific to each agreement, so contact the North Carolina Department of Revenue if you think you may have access to.

If you work in another state but live in North Carolina, you owe North Carolina tax on all your income, including wages earned out of state. You may also owe tax to the state where you worked. Most states allow you to claim a credit for taxes paid to another state to avoid double taxation, so you would file returns in both states.

Tax credits and deductions available in North Carolina

Beyond the standard deduction and retirement income exclusion, North Carolina offers several tax credits that reduce the tax you owe. The Earned Income Tax Credit (EITC) is available to low- and moderate-income workers and is claimed on your state return. The Child and Dependent Care Credit helps offset the cost of childcare. The Education Credit applies to certain education expenses.

North Carolina also allows you to deduct charitable contributions if you itemize deductions instead of taking the standard deduction, though most filers benefit more from the standard deduction. Military service members may may have access to for additional exclusions or credits. The state also offers credits for property taxes paid and for certain energy-efficient home improvements, though these have specific income limits and requirements.

To claim any of these credits or deductions, you list them on your Form D-400 or provide supporting documentation. Tax software will typically walk you through the questions needed to determine which credits you may have access to for. If you are unsure whether you may have access to for a particular credit, the North Carolina Department of Revenue website lists the requirements for each one.

Frequently Asked Questions

Does North Carolina tax retirement income?

North Carolina taxes most retirement income, but allows you to exclude up to $4,200 per year in retirement income if you are over 59½. This includes income from pensions, 401(k) withdrawals, and IRAs. Military retirement pay is fully excluded. Social Security benefits are not taxed in North Carolina.

What if I did not file a North Carolina tax return when I should have?

You can file a return for prior years at any time. The North Carolina Department of Revenue does not have a statute of limitations on assessment, so you could owe penalties and interest if you owed tax in a prior year. Filing late is better than not filing, because the penalties for not filing are steeper than for filing late. Contact the department or a tax professional if you need to file back returns.

Do I owe North Carolina tax if I only have investment income?

Yes, North Carolina taxes interest, dividends, capital gains, and other investment income at the same 4.99% rate as wages. Investment income counts toward your filing threshold, so if your investment income exceeds the threshold for your filing status, you must file a state return. The standard deduction applies to all types of income.

Can I file my North Carolina return for free?

Yes, the IRS Free File program includes free state return filing for may be able to access taxpayers with income below a certain level, usually around $79,000. You can also file on paper for free by downloading the form from the North Carolina Department of Revenue website and mailing it in. Tax software companies often offer free state filing as part of their free federal filing options.

What happens if I move out of North Carolina during the year?

You owe North Carolina income tax only on income earned while you were a resident. When you move, you become a part-year resident and file a part-year resident return. You report income earned before you moved as North Carolina income and income earned after you moved as income for your new state. You will likely also file a return in your new state for the income earned there.