North Carolina's income tax rate and how it applies to you
North Carolina has a flat state income tax rate of 4.99%, meaning you pay the same percentage on your taxable income regardless of how much you earn. This rate applies to wages, salaries, investment income, and other forms of income subject to state tax. The rate has been 4.99% since 2021, when it was lowered from 4.75%.
The tax is withheld from your paycheck if you're an employee, or you pay it directly if you're self-employed or have income that isn't subject to withholding. North Carolina also taxes certain types of retirement income, though some retirement income—like Social Security benefits—is excluded from taxation.
Key Takeaways
- North Carolina's state income tax rate is a flat 4.99% on all taxable income, with no brackets based on how much you earn.
- You file your state return using Form D-400 if you owe tax or want a refund, separate from your federal return.
- Certain income types are excluded from North Carolina tax, including Social Security benefits and some military retirement pay.
- If your employer withholds too much, you'll receive a refund when you file; if too little is withheld, you'll owe when you file.
Who has to file a North Carolina state return
You must file a North Carolina state return if you're a resident and your income exceeds the filing threshold. For 2024, the threshold is $12,750 for single filers and $25,500 for married couples filing jointly—these amounts change yearly. If you're self-employed, you may need to file even if your income is below the threshold.
Even if you don't owe tax, you should file if you had taxes withheld from your paychecks or made estimated tax payments, because you'll receive a refund. Non-residents who earned income in North Carolina may also need to file a state return, depending on the amount and type of income.
How withholding and estimated taxes work
If you're an employee, your employer withholds North Carolina income tax from each paycheck based on the Form W-4 you complete. The amount withheld depends on your filing status, the number of dependents you claim, and any additional withholding you request. You can adjust your withholding at any time by submitting a new W-4 to your employer.
If you're self-employed or have income without withholding—such as freelance work or rental income—you may need to pay estimated taxes quarterly. These are payments you make directly to the North Carolina Department of Revenue four times a year, typically in April, June, September, and January. Underpaying estimated taxes can result in penalties and interest.
Income that is and isn't taxed in North Carolina
North Carolina taxes most types of income: wages, salaries, bonuses, tips, interest, dividends, capital gains, and business income. However, certain income is excluded. Social Security benefits are not taxed in North Carolina, and neither is military retirement pay received by active-duty service members or disabled veterans.
Some retirement income receives special treatment. Distributions from traditional IRAs and 401(k)s are taxed as regular income, but if you're over 59½, you may exclude up to $35,000 per year of retirement income from pensions, annuities, and certain retirement accounts. This exclusion applies only to income from those specific sources, not to all retirement income.
Filing your North Carolina state return
You file your state return using Form D-400, which is separate from your federal return. The important date is the same as your federal important date—typically April 15. You can file by mail, electronically through the North Carolina Department of Revenue website, or through tax software that supports North Carolina returns.
When you file, you'll report your income, claim any deductions or credits you're may have access to to, and calculate what you owe or what refund you should receive. If you're due a refund, the state typically processes it within 4 to 6 weeks if you filed electronically, or longer if you mailed a paper return. If you owe tax, you must pay by the April 15 important date to avoid penalties and interest.
Deductions and credits available to North Carolina taxpayers
North Carolina allows a standard deduction that changes yearly—for 2024, it's $10,750 for single filers and $21,500 for married couples filing jointly. You can claim the standard deduction or itemize deductions if you have enough may have access to expenses, though most taxpayers benefit from the standard deduction.
The state also offers several tax credits, including a child and dependent care credit, an earned income credit, and a credit for taxes paid to other states if you worked in multiple states. Some credits are refundable, meaning you can receive money back even if you owe no tax; others reduce only the tax you owe. Check the Form D-400 instructions to see which credits explore to your situation.
What to do if you move to or from North Carolina
If you move to North Carolina during the year, you're considered a resident for the full tax year and must file a state return on all your income. If you move out of North Carolina, you're still responsible for tax on income you earned while you were a resident. You may also owe tax to the state you moved to, depending on when you moved and how much income you earned in each state.
When you move, update your address with your employer so they withhold the correct amount. If you worked in multiple states during the year, you may be able to claim a credit for taxes paid to another state to avoid double taxation. The Form D-400 instructions include a worksheet to calculate this credit.
Frequently Asked Questions
Does North Carolina tax Social Security income?
No. Social Security benefits are completely excluded from North Carolina state income tax. You do not report them on your state return, even though you may need to report them on your federal return.
What happens if I don't file a North Carolina return when I owe tax?
The state will assess penalties and interest on the unpaid tax. The penalty is typically 5% of the unpaid tax per month, up to 25%, plus interest that compounds daily. Filing late is better than not filing at all, because the penalty for filing late is smaller than the penalty for not filing.
Can I file my North Carolina return before I file my federal return?
Yes. Your state return is separate from your federal return, and you can file either one first. However, if you need information from your federal return to complete your state return accurately, you may want to file federal first.
How do I know if my employer is withholding the right amount?
Use the withholding calculator on the North Carolina Department of Revenue website, or review your pay stub to see how much is being withheld. If you consistently get a large refund or owe a large amount, adjust your W-4 with your employer to change your withholding.
What if I'm a resident but worked in another state?
You owe North Carolina tax on all your income, but you can claim a credit for taxes paid to the other state. This prevents you from paying tax on the same income twice. Report the credit on your Form D-400 using the worksheet in the instructions.