North Carolina has a state income tax

Yes, North Carolina charges a 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 both residents and nonresidents who work in the state.

North Carolina also taxes certain types of income differently. Long-term capital gains and may have access to dividends are taxed at a lower rate of 4.75 percent. If you live in North Carolina or work there, you will owe state income tax unless you fall into a specific exemption category.

Key Takeaways

  • North Carolina's state income tax rate is 4.99 percent on most income, with a lower rate of 4.75 percent on long-term capital gains and may have access to dividends.
  • You must file a North Carolina state tax return if you earned income in the state and meet the filing threshold, even if you do not owe federal tax.
  • North Carolina offers a standard deduction that reduces your taxable income, and the amount depends on your age and filing status.
  • Nonresidents who worked in North Carolina during the year may owe state tax on wages earned there, even if they live elsewhere.

Who has to file a North Carolina state tax return

You must file a North Carolina state return if you lived in the state for any part of the tax year and your income exceeded the filing threshold. The threshold varies by age and filing status. For the 2023 tax year, a single person under 65 with at least $12,750 in gross income must file. If you are 65 or older, the threshold is $14,750. Married couples filing jointly have a higher threshold of $24,750 if both are under 65.

Even if you do not owe federal income tax, you may still owe North Carolina state tax. The state has its own income limits and deductions that differ from federal rules. If you earned any income in North Carolina as a nonresident, you should check whether you need to file a state return for that income.

Standard deduction and tax brackets in North Carolina

North Carolina uses a standard deduction to reduce the income you pay tax on. For 2023, the standard deduction is $10,750 for single filers under 65, and $13,500 for those 65 and older. Married couples filing jointly get $21,500 if both spouses are under 65, and $26,500 if at least one spouse is 65 or older.

Because North Carolina has a flat tax rate rather than brackets, your tax bill does not jump based on income level. Once you subtract the standard deduction from your income, you multiply the remaining amount by 4.99 percent. This means a person earning $50,000 pays the same rate as someone earning $500,000.

What income counts toward North Carolina state tax

North Carolina taxes wages, salaries, self-employment income, interest, dividends, and retirement distributions. If you received a W-2 from an employer, that income is taxable. If you are self-employed, your net business income is taxable. Interest from savings accounts and bonds counts as income, as do most dividend payments.

Some types of income are exempt or taxed at lower rates. Social Security benefits are not taxed in North Carolina. Military retirement pay and certain federal pensions receive special treatment. Long-term capital gains (profits from selling an asset you held more than one year) and may have access to dividends are taxed at 4.75 percent instead of 4.99 percent. Certain retirement account distributions, like may have access to withdrawals from a 529 education savings plan, may also be exempt.

How nonresidents file North Carolina state tax

If you worked in North Carolina but lived in another state during the tax year, you are a nonresident for tax purposes. You owe North Carolina state tax only on income you earned within the state. This includes wages from a job in North Carolina, self-employment income from a business operated there, and rental income from property located in the state.

Nonresidents file Form NC-1, the same return that residents use, but they report only North Carolina-source income. You will also need to file a return in your home state for income earned there. Some states offer a credit for taxes paid to other states, which can reduce or eliminate double taxation. Check with your home state's tax authority to see whether you can claim a credit for North Carolina taxes paid.

Tax credits and deductions available in North Carolina

North Carolina offers several tax credits that reduce your tax bill directly. The Earned Income Tax Credit (EITC) is available to low- and moderate-income workers and is based on federal EITC amounts. The state also offers a child and dependent care credit, a credit for taxes paid to other states, and a credit for certain charitable contributions.

Beyond the standard deduction, North Carolina allows you to deduct certain expenses if you itemize instead. These include state and local taxes (up to $10,000 combined), mortgage interest, charitable donations, and medical expenses above a threshold. Most people benefit from taking the standard deduction because it is simpler and larger than their itemized deductions would be. You can only claim one or the other, not both.

When and how to file your North Carolina state return

North Carolina state returns are due on the same date as federal returns: April 15 of the following year. You can file online using tax software, by mail, or through a tax professional. The North Carolina Department of Revenue accepts returns filed electronically through approved software providers.

If you cannot file by April 15, you can request an extension, which gives you until October 15 to submit your return. An extension delays the filing important date but does not delay the payment important date—taxes owed are still due by April 15, or you will owe interest and penalties. If you expect a refund, filing early ensures you receive it sooner.

Frequently Asked Questions

Do I have to pay North Carolina state tax if I work remotely for an out-of-state company?

If you live in North Carolina and work remotely, you owe North Carolina state tax on your wages even though your employer is out of state. North Carolina taxes residents on all income earned, regardless of where the employer is located. Your employer may not withhold North Carolina tax automatically, so you may need to make estimated payments or adjust your withholding.

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

If you owe taxes and do not file, the state can assess penalties and interest on the unpaid amount. The penalty starts at 5 percent of the unpaid tax and increases the longer the return remains unfiled. Interest accrues daily at a rate set by the state. If you do not owe tax, there is no penalty for not filing, but filing may still be worth it if you are due a refund.

Can I claim dependents on my North Carolina return?

North Carolina allows you to claim dependents, but the rules are similar to federal rules. You can claim a dependent if they are a may have access to child or relative, live with you for the entire year, and you provide more than half their financial support. The dependent must have a valid Social Security number. You cannot claim the same dependent on both your return and someone else's return.

Is there a North Carolina tax on retirement income?

North Carolina does not tax Social Security benefits. Military retirement pay, federal pensions, and certain other retirement income receive preferential treatment or exemptions. However, distributions from IRAs, 401(k)s, and similar plans are taxed as ordinary income unless they may have access to for an exemption. Check the specific type of retirement income you receive to determine the tax treatment.

What if I moved to North Carolina partway through the year?

You are considered a North Carolina resident for the entire tax year if you lived in the state on December 31. If you moved in during the year, you owe tax on all income earned after you became a resident, plus any income earned in North Carolina before you moved. You may also owe tax to your previous state on income earned there before the move. File returns in both states and check whether either offers a credit for taxes paid to the other.