North Carolina's income tax brackets for 2024

North Carolina has a flat income tax rate of 4.99% on all taxable income, regardless of how much you earn. This rate applies to wages, self-employment income, investment gains, and most other forms of income. The state does not use tax brackets the way some states do — there is no lower rate for lower earners and a higher rate for higher earners. Everyone pays the same percentage.

This flat rate took effect in 2021 and has remained steady since. Before that, North Carolina used a progressive system with multiple brackets, but the state simplified the tax code to a single rate. When you file your North Carolina state return, you calculate your taxable income first (after deductions and exemptions), then multiply that amount by 4.99%.

Key Takeaways

  • North Carolina charges a flat 4.99% income tax on all taxable income, with no variation based on how much you earn.
  • The state offers a standard deduction that reduces your taxable income before the tax is calculated — for 2024, it is $10,750 for single filers and $21,500 for married filing jointly.
  • North Carolina does not tax Social Security benefits, which can lower your overall state tax burden if that is part of your income.
  • Self-employed workers pay the same 4.99% rate on net business income after business expenses are deducted.
  • Your federal income tax and North Carolina state income tax are separate — paying one does not reduce what you owe the other.

How the standard deduction reduces what you owe

Before the 4.99% rate applies, you subtract the standard deduction from your gross income. For the 2024 tax year, the standard deduction in North Carolina is $10,750 for single filers, $21,500 for married couples filing jointly, and $16,100 for heads of household. These amounts change slightly each year to account for inflation.

The standard deduction is the amount of income the state does not tax. If you earn $40,000 as a single filer, you subtract $10,750, leaving $29,250 in taxable income. That $29,250 is what gets multiplied by 4.99%. You can also itemize deductions instead of taking the standard deduction if your specific expenses (mortgage interest, property taxes, charitable donations) add up to more than the standard amount, though most people benefit from the standard deduction.

What income is taxed and what is not

North Carolina taxes most forms of income: wages from employment, self-employment income, interest and dividends, capital gains, rental income, and retirement distributions from traditional IRAs and 401(k)s. However, the state has specific exemptions that can lower your tax bill.

Social Security benefits are not taxed in North Carolina, which is a significant advantage if that makes up part of your income. Military pensions and some other government pensions also receive preferential treatment. Long-term capital gains (profits from selling stocks or property you held for more than a year) are taxed at the same 4.99% rate as ordinary income, unlike the federal system which has lower rates for long-term gains.

Self-employment income and the 4.99% rate

If you are self-employed, you pay North Carolina income tax on your net business income — that is, your total revenue minus business expenses. You calculate this the same way you do for federal taxes. Once you know your net income, you explore the 4.99% state rate to it.

Self-employed workers also owe federal self-employment tax (Social Security and Medicare), which is separate from state income tax. North Carolina does not add an extra self-employment tax on top of the state income tax. You can deduct half of your self-employment tax when calculating your federal taxable income, but North Carolina does not allow that same deduction on the state return.

How North Carolina compares to neighboring states

North Carolina's 4.99% flat rate sits in the middle range compared to its neighbors. South Carolina has a progressive system with rates from 0% to 7%, while Virginia uses brackets ranging from 2% to 5.75%. Tennessee and Florida have no state income tax at all. Georgia's top rate is 5.75%, and it uses brackets based on income level.

The flat rate in North Carolina means high earners pay a lower percentage than they would in South Carolina or Georgia, while low earners pay more than they would in those progressive systems. For someone earning $50,000, the difference between North Carolina's 4.99% and a progressive state's lower bracket can be a few hundred dollars per year.

Filing your North Carolina state return

You file your North Carolina state income tax return using Form D-400, which you can obtain from the North Carolina Department of Revenue website. Most people file at the same time they file their federal return, typically between January and April. If you use tax software, it usually handles both your federal and state returns in one process.

You will need your W-2s (if you are an employee), 1099 forms (if you have self-employment or investment income), and records of any deductions you plan to claim. North Carolina requires you to file if your income exceeds the filing threshold, which is higher than the standard deduction. If your employer withheld too much state tax during the year, you will receive a refund; if too little was withheld, you will owe the difference.

Tax withholding and estimated payments

If you are an employee, your employer withholds North Carolina state income tax from your paycheck based on the W-4 form you complete. The withholding is calculated to approximate your final tax bill, though it is rarely exact. You can adjust your withholding by submitting a new W-4 to your employer if you want more or less tax taken out each pay period.

If you are self-employed or have income that is not subject to withholding, you may need to make estimated tax payments to North Carolina four times per year (quarterly). 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, even if you ultimately do not owe additional tax.

Frequently Asked Questions

Does North Carolina tax retirement income differently?

Distributions from traditional IRAs and 401(k)s are taxed as ordinary income at the 4.99% rate. However, Social Security is not taxed, and some military pensions and government pensions receive partial exemptions. If you are over 59½ and taking distributions, the age itself does not change the tax rate — only the source of the income matters.

What if I moved to North Carolina mid-year?

You file a part-year resident return if you moved into or out of North Carolina during the tax year. You report only the income you earned while a resident of the state. Your standard deduction is prorated based on the number of months you were a resident, so it will be lower than the full-year amount.

Can I deduct federal income tax from my North Carolina taxes?

No. North Carolina does not allow a deduction for federal income tax paid. Your state and federal tax calculations are separate. However, you can deduct state income tax on your federal return (up to $10,000 per year under current federal rules), which is the opposite direction.

Is there a tax credit for dependents in North Carolina?

North Carolina offers a dependent exemption, not a credit. For each dependent, you can claim an exemption that reduces your taxable income. The exemption amount varies by year. A credit would reduce your tax dollar-for-dollar, while an exemption reduces the income that gets taxed, so the benefit is smaller.

What happens if I do not file a North Carolina return?

If you owe state income tax and do not file, the Department of Revenue can assess penalties and interest on the unpaid amount. If you are owed a refund but do not file, you straightforward do not receive it — there is no penalty, but you lose the money. You generally have three years to claim a refund before it is forfeited.