Yes, North Carolina has a state income tax
North Carolina charges state income tax on wages, investment income, and other earnings. The current tax rate is a flat 4.99 percent on all taxable income, regardless of how much you earn. This rate applies to residents and to nonresidents who work in the state.
The state also taxes interest, dividends, capital gains, and business income at the same 4.99 percent rate. If you live in North Carolina or work there, you will owe state income tax unless you fall into a narrow category of exemptions — such as certain military pensions or specific retirement income under state law.
Key Takeaways
- North Carolina's state income tax rate is a flat 4.99 percent on all taxable income.
- The tax applies to wages, investment income, business earnings, and most retirement income.
- You owe North Carolina income tax if you are a resident or if you work in the state as a nonresident.
- North Carolina allows a standard deduction that reduces your taxable income before the 4.99 percent rate is applied.
- The state offers tax credits for dependent children, education expenses, and certain other situations that can lower what you owe.
How the 4.99 percent rate works
The 4.99 percent is a flat tax, meaning it applies to every dollar of taxable income at the same rate. You do not move into higher brackets as your income rises, the way federal income tax does. Whether you earn $30,000 or $300,000, the state tax on your earnings is 4.99 percent of the amount subject to tax.
Your taxable income is not the same as your gross income. North Carolina allows you to subtract a standard deduction before calculating the 4.99 percent. For the 2024 tax year, the standard deduction is $10,750 for single filers and $21,500 for married couples filing jointly. You can also deduct certain expenses — such as contributions to a traditional IRA or student loan interest — which further reduces the amount the 4.99 percent applies to.
Once you know your taxable income, multiply it by 0.0499 to find your state income tax before credits. Then you subtract any credits you are may have access to to, such as the child dependent credit or the education credit, to arrive at what you actually owe.
Who has to file a North Carolina tax return
You must file a North Carolina state return if you are a resident and your income exceeds the filing threshold. For 2024, that threshold is $12,750 for single filers and $25,500 for married couples filing jointly — slightly higher than the standard deduction because the state allows a small additional amount before requiring a return.
Nonresidents who work in North Carolina must also file if their North Carolina income alone exceeds the threshold. If you lived in North Carolina for part of the year and moved, you file as a part-year resident and report only the income earned while you were in the state.
Even if your income is below the threshold, you may want to file anyway if you had taxes withheld from your paychecks or if you are may have access to to refundable credits. Filing can result in a refund of money the state held.
What income is taxed and what is not
North Carolina taxes earned income — wages, salaries, tips, and self-employment income — at the 4.99 percent rate. It also taxes unearned income such as interest from savings accounts, dividends from stocks, capital gains from selling investments, and rental income.
Some types of income are partially or fully exempt. Military retirement pay is exempt if you served in the U.S. Armed Forces. Certain federal pensions and survivor benefits may be exempt under specific conditions. Social Security benefits are not taxed by North Carolina. Some distributions from retirement accounts, such as Roth conversions, may have different treatment depending on your age and the type of account.
If you receive income from sources outside North Carolina — such as a job in South Carolina or investment income from anywhere — you still owe North Carolina tax on it if you are a resident. Nonresidents owe tax only on income earned within the state.
Standard deduction and tax credits that reduce what you owe
The standard deduction is the amount you subtract from your gross income before the 4.99 percent rate applies. For 2024, it is $10,750 for single filers, $21,500 for married couples filing jointly, and $16,100 for heads of household. If you are 65 or older, you get an additional $1,500 deduction. If you are blind, you get another $1,500.
Beyond the standard deduction, North Carolina offers tax credits that directly reduce the amount of tax you owe. The child dependent credit is $250 per child under 17. The education credit covers tuition paid to North Carolina colleges and universities. The earned income tax credit mirrors the federal credit and provides money back to lower-income workers. The property tax credit helps renters and homeowners with low incomes.
Credits are more valuable than deductions because they reduce your tax dollar-for-dollar, whereas a deduction only reduces the income the 4.99 percent applies to. If a credit is refundable, you can receive money back even if you owe no tax. The earned income tax credit is refundable in North Carolina.
How withholding and estimated payments work
If you are an employee, your employer withholds North Carolina state income tax from your paycheck based on a form you complete — similar to the federal W-4. The amount withheld depends on your income, the number of dependents you claim, and other factors you enter on the form.
If you are self-employed or have income that is not subject to withholding — such as investment income or rental income — you may need to make estimated tax payments to North Carolina four times a year. These payments are due in April, June, September, and January. If you do not pay enough through withholding and estimated payments combined, you may owe a penalty when you file your return.
You can adjust your withholding at any time by submitting a new form to your employer. If you expect a large refund, you can increase your withholding to bring your payments closer to what you actually owe. If you expect to owe money, you can decrease your withholding to avoid overpaying throughout the year.
Filing your North Carolina return and where to send it
North Carolina returns are filed with the North Carolina Department of Revenue. You can file online through the department's website, by mail, or through a tax software program that supports North Carolina returns. The state does not require you to use a particular method — online filing is faster and reduces errors, but paper returns are accepted.
The filing important date is April 15 of the year following the tax year, the same as the federal important date. If you need more time, you can request an extension, which gives you until October 15 to file. An extension to file is not an extension to pay — if you owe tax, it is still due by April 15, and interest and penalties accrue on any unpaid balance.
If you file jointly with a spouse, only one return is needed. If you are married but file separately, each spouse files their own return and reports only their own income and deductions. Part-year residents file a single return that reports income for the entire year but calculates the tax based on the portion of the year they were a resident.
Frequently Asked Questions
Does North Carolina tax retirement income differently than wages?
Most retirement income is taxed at the same 4.99 percent rate as wages. However, military retirement pay is exempt, and certain federal pensions may be exempt under specific conditions. Social Security is not taxed. Distributions from traditional IRAs and 401(k)s are taxed as ordinary income. Roth IRA withdrawals are generally not taxed if the account has been open for at least five years and you are 59½ or older.
What if I moved to North Carolina during the year?
You file as a part-year resident and report only the income you earned while living in the state. Your standard deduction and tax brackets are prorated based on the number of days you were a resident. If you moved out of North Carolina, you owe tax only on income earned before you left.
Can I deduct federal income tax paid from my North Carolina return?
No. North Carolina does not allow a deduction for federal income tax paid. You can deduct certain other expenses, such as contributions to a traditional IRA, student loan interest, and educator expenses, but federal tax is not among them.
What happens if I do not file a return when I owe tax?
The state charges interest on unpaid tax and may assess penalties for failure to file and failure to pay. Interest accrues from the original due date. Penalties can range from 5 to 25 percent of the unpaid tax, depending on how late the return is and whether the delay was intentional. If you owe a significant amount, the state may place a lien on your property or garnish your wages.
Is there a local income tax in North Carolina cities or counties?
No. North Carolina does not allow cities or counties to impose their own income tax. The only state-level income tax is the 4.99 percent charged by the state. Some localities may have property tax, sales tax, or other taxes, but not income tax.