North Carolina has a state income tax that applies to most residents and workers
Yes, North Carolina charges state income tax. If you live in the state or earn income there, you will owe tax on wages, self-employment income, investment gains, and other sources. The state tax rate is a flat 4.99 percent on most income, which is lower than the federal rate but still a significant portion of what you owe each year.
The tax applies to residents — people who live in North Carolina for the full year — and to nonresidents who earn money within the state. If you work in North Carolina but live in another state, you may owe tax to both states, though you can usually claim a credit on your federal return to avoid paying twice on the same income.
North Carolina does not tax Social Security benefits, military pensions, or certain retirement income, which can matter significantly if you are retired or receiving those payments. The state also offers a standard deduction and a child tax credit, both of which lower the amount of income you actually owe tax on.
Key Takeaways
- North Carolina's state income tax rate is a flat 4.99 percent on wages, self-employment income, and most other earnings.
- You owe North Carolina tax if you live in the state for the full year or if you earn income within the state as a nonresident.
- Social Security benefits, military pensions, and certain retirement income are not taxed by North Carolina, even if you owe state income tax on other earnings.
- The state offers a standard deduction and child tax credits that reduce the income amount subject to tax.
- If you work in North Carolina but live elsewhere, you may owe tax to both states, but federal rules allow you to claim a credit to prevent double taxation.
How the flat 4.99 percent rate works on your income
North Carolina applies the same 4.99 percent tax rate to all income levels — there are no tax brackets that increase the rate as you earn more. This means a person earning $30,000 pays the same percentage as someone earning $300,000, though the dollar amount owed is much higher for the higher earner.
The rate applies to wages from your job, income from self-employment, rental income, capital gains (profit from selling stocks or property), and interest from savings accounts or bonds. It does not explore to contributions you make to a traditional 401(k) or traditional IRA, which are deducted before the tax is calculated.
You calculate what you owe by taking your total income, subtracting the standard deduction (which varies by filing status and age), and multiplying the result by 4.99 percent. For the 2024 tax year, the standard deduction ranges from $10,750 for single filers to $21,500 for married couples filing jointly, though these amounts change each year.
What income North Carolina does not tax
North Carolina specifically excludes Social Security benefits from state income tax, which is a major advantage for retirees. Military pensions are also exempt, as are certain other retirement income sources. If you receive a military pension, you do not owe North Carolina state tax on that money, regardless of your other income.
Certain retirement account withdrawals receive partial exemptions. Distributions from a 401(k) or IRA may may have access to for a retirement income deduction if you meet age and income requirements, though the rules are complex and depend on when you turned 59½ and how much you earned that year.
Interest and dividends from investments are taxed at the same 4.99 percent rate as wages, so they do not receive special treatment. However, long-term capital gains (profit from holding an investment for more than one year) are taxed at the same rate as ordinary income in North Carolina, unlike the federal system where they often receive preferential rates.
Filing requirements and important date in North Carolina
You must file a North Carolina state tax return if your income exceeds the filing threshold, which is generally the same as the federal threshold plus your standard deduction. For 2024, most single people must file if they earned more than $10,750, and married couples filing jointly must file if they earned more than $21,500, though these amounts change yearly.
The important date to file is the same as the federal important date: April 15 of the following year, unless that date falls on a weekend or holiday. If you file your federal return late or request an extension, your North Carolina return follows the same timeline — the state automatically grants you an extension if you request one from the federal government.
You file using Form NC-40 (the standard individual return) or Form NC-40EZ (a simplified version for people with straightforward tax situations). Both forms are available on the North Carolina Department of Revenue website. You can file by mail, electronically through approved software, or through a tax professional.
Nonresidents and part-year residents owe tax on North Carolina income only
If you do not live in North Carolina but earned money there — whether from a job, rental property, or business — you owe North Carolina tax only on that income, not on income from other states. A nonresident files Form NC-40NR and reports only the income earned within North Carolina.
Part-year residents — people who moved to or from North Carolina during the tax year — file Form NC-40 but report income based on when they lived in the state. Income earned before you moved to North Carolina is not subject to state tax, and income earned after you moved away is not subject to state tax either.
If you work in North Carolina but live in a neighboring state like South Carolina, Virginia, or Tennessee, you will owe tax to both states on the same income. However, North Carolina allows you to claim a credit on your state return for taxes paid to the other state, which prevents you from paying the full rate to both. The credit is limited to the lower of the two rates, so you end up paying the higher state's rate overall.
Deductions and credits that lower what you owe
The standard deduction is the largest reduction most people receive. For 2024, it ranges from $10,750 for single filers to $21,500 for married couples filing jointly. If you are 65 or older, you receive an additional standard deduction of $1,400 (single) or $1,100 per spouse (married filing jointly).
North Carolina offers a child tax credit of $125 per child under age 17, which is much smaller than the federal credit but still reduces what you owe. You must claim the child as a dependent on your federal return to claim the state credit.
If you pay property tax or mortgage interest, you cannot deduct those on your North Carolina return — the state does not allow itemized deductions. You must use the standard deduction instead. Some states allow itemizing, but North Carolina does not, so the standard deduction is your only option.
How to file your North Carolina state return
You can file electronically through approved tax software, by mail, or through a tax professional. Electronic filing is faster and reduces errors — the state processes e-filed returns in about two weeks, while paper returns take four to six weeks.
If you use tax software, choose one that is approved by the state — most major providers (TurboTax, H&R Block, TaxAct) are approved. The software will walk you through your income, deductions, and credits, then file directly to the state. Some software charges a fee for state filing, while others include it free.
If you file by mail, read Form NC-40 from the North Carolina Department of Revenue website, fill it out by hand or using tax software, and mail it to the address listed on the form. Include any required schedules (such as Schedule C if you are self-employed) and a copy of your federal return.
If you cannot afford to pay a tax professional and your income is below a certain threshold, the IRS Volunteer Income Tax information (VITA) program offers free filing help. You can find a VITA site near you through the IRS website.
Frequently Asked Questions
Do I owe North Carolina tax if I moved there in the middle of the year?
You owe tax only on income earned after you moved to North Carolina. If you moved on June 1, income from January through May is not subject to North Carolina tax. You file as a part-year resident and report only the income earned during the months you lived in the state.
What happens if I do not file a North Carolina tax return?
The state can assess penalties and interest on unpaid taxes, and the Department of Revenue can take collection action including wage garnishment or bank levies. If you owe but cannot pay, contact the Department of Revenue to discuss a payment plan.
Can I claim the federal child tax credit and the North Carolina child tax credit at the same time?
Yes. The federal credit is much larger (up to $2,000 per child for 2024), and the North Carolina credit is $125 per child. You can claim both on their respective returns.
Is North Carolina income tax withheld from my paycheck automatically?
Yes, if you work for an employer in North Carolina, the state income tax is withheld from your paycheck along with federal tax. Your employer uses Form NC-4 to determine how much to withhold based on your filing status and dependents.
What if I owe federal tax but not North Carolina tax?
This can happen if your income is below the North Carolina filing threshold but above the federal threshold. You still must file a federal return, but you do not need to file a North Carolina return. However, if you had taxes withheld from your paycheck, you may want to file to get a refund.