North Carolina has a state income tax, and it applies to most residents and workers
Yes, North Carolina charges a state income tax. If you live in North Carolina or earn income there, you will owe state tax on wages, self-employment income, investment gains, and other sources. The state tax rate is a flat 4.99% on most income — meaning everyone pays the same percentage regardless of how much they earn. This is different from the federal income tax, which uses brackets that increase with income.
North Carolina also taxes certain types of income differently. Long-term capital gains (profits from selling stocks or property you held for over a year) are taxed at a lower rate of 4.99%, while short-term gains are taxed as regular income. Dividends and interest income are taxed as regular income at the 4.99% rate. Some income types — like Social Security benefits and certain retirement distributions — may be partially or fully exempt from state tax.
Key Takeaways
- North Carolina's state income tax rate is a flat 4.99% on wages, self-employment income, and most other earnings.
- You must file a North Carolina state tax return if you earned income in the state or lived there for part of the year, even if you owe no tax.
- Social Security benefits, certain military pensions, and some retirement income may be partially or fully exempt from North Carolina state tax.
- North Carolina also has a sales tax of 4.75% statewide, plus local sales taxes that vary by county, bringing the total to between 6.75% and 7.5%.
- If you moved to or from North Carolina during the year, you may owe tax to both states and should file returns in each.
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 had income above the filing threshold. For 2024, the threshold is $12,950 for single filers and $25,900 for married couples filing jointly — the same as the federal threshold. If you earned less than that, you may still want to file to claim a refund of taxes withheld from your paycheck.
If you moved to North Carolina during the year, you are considered a resident for the entire year and must file a full-year return. If you moved out of North Carolina, you file as a part-year resident and report only the income you earned while living there. You may also owe tax to your previous state, so you may need to file returns in both places.
How North Carolina state tax withholding works
If you work as an employee in North Carolina, your employer withholds state income tax from your paycheck using the W-4 form you fill out when hired. The amount withheld depends on the number of dependents and adjustments you claim. You can adjust your withholding at any time by giving your employer a new W-4.
If you are self-employed or have income that is not subject to withholding — such as freelance work, rental income, or investment gains — you may need to make quarterly estimated tax payments to North Carolina. These are due on April 15, June 15, September 15, and January 15. If you do not pay enough throughout the year, you may owe a penalty when you file your return.
Income that is exempt or partially exempt from North Carolina tax
North Carolina exempts certain types of income from state tax entirely. Social Security benefits are fully exempt. Military pensions are fully exempt. Distributions from certain retirement accounts — including traditional IRAs, 401(k)s, and 403(b)s — are exempt up to $35,000 per person per year if you are age 59½ or older. This exemption is one of the most generous in the country and can significantly reduce your tax bill if you are retired.
Roth IRA distributions are also exempt from North Carolina tax. Distributions from 529 college savings plans are exempt when used for may have access to education expenses. If you receive unemployment benefits, those are fully exempt from state tax. Certain disability income and workers' compensation benefits are also exempt.
North Carolina sales tax and other state taxes
In addition to income tax, North Carolina charges a state sales tax of 4.75% on most purchases. Counties can add a local sales tax on top of that, ranging from 2% to 2.75%, bringing the total sales tax to between 6.75% and 7.5% depending on where you shop. Groceries are taxed at a lower rate of 2% state tax plus local tax.
North Carolina also taxes motor fuel at 38.6 cents per gallon (as of 2024, though this rate can change). The state charges property tax on real estate and personal property, though rates vary widely by county. There is no inheritance tax or estate tax in North Carolina, which means you do not owe state tax on money or property you inherit.
Filing your North Carolina state return
You can file your North Carolina state return using Form NC-40 (the standard return) or Form NC-40EZ (a shorter form for straightforward returns). Both are available on the North Carolina Department of Revenue website. You can file by mail, or you can file electronically using tax software or a tax professional.
The important date to file is the same as the federal important date — typically April 15. If you cannot file by then, you can request an extension, which gives you until October 15 to file. An extension to file is not an extension to pay, so if you owe tax, you should pay by April 15 to avoid penalties and interest.
What happens if you move to or from North Carolina
If you move to North Carolina from another state, you are considered a resident starting the day you arrive. You must file a North Carolina return for the entire year, even if you only lived there for part of it. You may also owe tax to your previous state on income earned while you lived there, so you may need to file returns in both states. Some states offer credits for taxes paid to other states, which can reduce your total tax bill.
If you move out of North Carolina, you file as a part-year resident and report only income earned while you lived in the state. You must file a return for the year you move, even if you did not live there the whole year. Your new state may also require you to file a return for the income you earned after you moved.
Frequently Asked Questions
Do I have to pay North Carolina state tax if I work remotely for a company in another state?
If you live in North Carolina and work remotely, you owe North Carolina state tax on your wages, even if your employer is located in another state. North Carolina taxes income earned by residents regardless of where the employer is based. Your employer should withhold North Carolina tax from your paycheck.
Can I deduct federal income tax paid from my North Carolina state return?
No, North Carolina does not allow you to deduct federal income tax paid. However, you can deduct state income tax paid to other states if you are a part-year resident or if you earned income in multiple states. You can also deduct property taxes and charitable contributions.
What is the North Carolina standard deduction?
For 2024, the North Carolina standard deduction is $12,950 for single filers and $25,900 for married couples filing jointly. These amounts are the same as the federal standard deduction. If you are age 65 or older, you get an additional deduction of $1,400 (single) or $1,100 per person (married).
Is North Carolina a good state for taxes if I am retired?
North Carolina is relatively tax-friendly for retirees because it exempts Social Security, military pensions, and up to $35,000 per person per year in retirement account distributions. However, the state does tax other retirement income like rental income and investment gains. Compare North Carolina's tax treatment to other states you are considering before making a move.
What if I did not file a North Carolina return in a previous year?
If you owed tax and did not file, you should file as soon as possible. North Carolina can assess penalties and interest on unpaid tax, and the longer you wait, the larger the bill becomes. If you are owed a refund, you generally have three years to claim it. Contact the North Carolina Department of Revenue or a tax professional for guidance on filing past returns.