North Carolina has three main taxes that affect your income and purchases
North Carolina income tax is a state tax on wages, salaries, and other earnings. The state also charges sales tax on most goods you buy, and property tax on real estate you own. These three taxes fund schools, roads, and state services. The rates and rules for each one differ, and understanding how they work helps you plan your budget and know what to expect when you file taxes or make a purchase.
North Carolina does not have a separate local income tax, but some counties and cities add their own sales tax on top of the state rate. Property taxes vary significantly by county. This guide explains how each tax works, what the current rates are, and where to find more details about your specific situation.
Key Takeaways
- North Carolina income tax rates range from 4.25% to 4.99% depending on your income level, and you pay it on wages, interest, and most other earnings.
- The state sales tax is 4.75%, but your total rate may be higher if your county or city adds a local sales tax on top.
- Property tax is set by your county and varies widely — you pay it annually on the assessed value of real estate you own.
- North Carolina does not tax Social Security benefits, military pensions, or retirement income from certain sources, which can lower your overall tax burden.
How North Carolina income tax works
North Carolina taxes your income using a progressive tax system, meaning the rate increases as your income goes up. As of 2024, the state income tax rate is a flat 4.99% for most taxpayers. This rate applies to wages, self-employment income, interest, dividends, and other earnings. You pay this tax in addition to federal income tax.
If you work in North Carolina, your employer withholds state income tax from your paycheck automatically. If you are self-employed or have income without withholding, you may need to make quarterly estimated tax payments to the North Carolina Department of Revenue. When you file your state tax return, you report all income sources and claim deductions or credits you are may have access to to, which can lower the amount you owe.
North Carolina offers several tax breaks that reduce your state income tax bill. You do not pay state income tax on Social Security benefits, military retirement pay, or certain other pension income. If you are over 65, you may also claim an additional standard deduction. These rules change occasionally, so check the Department of Revenue website or speak with a tax preparer to see what applies to your situation.
North Carolina sales tax on purchases
When you buy most goods in North Carolina, you pay a 4.75% state sales tax added to the price at checkout. This tax applies to clothing, electronics, groceries, and most other items. A few things are exempt — prescription medications, unprepared food you cook at home, and certain medical equipment do not have sales tax.
Many North Carolina counties and cities add their own local sales tax on top of the state rate. Some counties charge an additional 2% or more, which means your total sales tax could be 6.75% or higher depending on where you shop. The local rate varies by location, so the same item costs different amounts in different parts of the state. When you buy something online from an out-of-state seller, North Carolina may require you to pay sales tax if the seller has a physical presence in the state, though this rule is complex and still evolving.
Property tax in North Carolina counties
If you own real estate in North Carolina, your county assesses the property and charges you an annual property tax based on its value. The county tax assessor determines the assessed value, which is usually lower than the market price you paid. You then pay a tax rate set by your county government, multiplied by that assessed value. Property tax rates vary widely across the state — some counties charge less than 0.5% of assessed value per year, while others charge over 1%.
You receive a property tax bill once or twice a year, depending on your county. If you have a mortgage, your lender may require you to pay property tax through an escrow account as part of your monthly payment. If you own the home outright, you pay the county directly. Homeowners over 65 or with disabilities may may have access to for a homestead exemption, which reduces the assessed value and lowers the tax bill. Contact your county tax assessor's office to learn what exemptions you might be may have access to to.
North Carolina allows you to challenge your property assessment if you believe it is too high. You can file a formal appeal with your county, usually within a set window each year. The process varies by county, so check your local assessor's office for important date and procedures.
Who does not pay North Carolina income tax
North Carolina excludes certain types of income from state taxation. Social Security benefits are not taxed by the state, even if they are taxed by the federal government. Military retirement pay and certain other government pensions are also exempt. If you receive income from a 401(k) or IRA withdrawal, that is taxable, but some retirement income sources have special treatment.
If your only income is from sources that North Carolina does not tax — for example, you are retired and live on Social Security and a military pension — you may not owe any state income tax at all. However, you may still be required to file a return to claim refundable credits or to document your exempt income. Speak with a tax preparer or contact the Department of Revenue if you are unsure whether you need to file.
Where to find your county's specific tax rates
Because property tax and local sales tax vary by county, you need to know your specific rates. The North Carolina Department of Revenue website lists the state sales tax rate and provides links to county tax assessor offices. You can also contact your county assessor directly to ask about property tax rates, homestead exemptions, and how your property is assessed.
For income tax questions, the Department of Revenue offers a phone line and online resources. If you file taxes, you can use the state's free tax software or work with a tax preparer. Many libraries and community centers in North Carolina offer free tax preparation help during tax season, especially for people with lower incomes.
Frequently Asked Questions
Do I have to pay North Carolina income tax if I work out of state?
If you live in North Carolina and earn income from any source, you owe state income tax on that income, even if you work in another state. However, if you work in a state that also taxes your income, you may be able to claim a credit on your North Carolina return to avoid paying tax twice on the same earnings. Speak with a tax preparer about your situation.
Is there a local income tax in North Carolina?
No. North Carolina does not allow cities or counties to charge a separate income tax. The only local taxes are sales tax and property tax, which vary by location.
What happens if I do not pay my property tax bill?
If you do not pay property tax by the important date, your county can charge penalties and interest, and eventually may place a lien on your property or foreclose. If you are having trouble paying, contact your county tax assessor or a legal aid office to discuss payment plans or other options.
Can I deduct North Carolina state income tax on my federal return?
Yes, you can deduct state income tax paid (or sales tax, if you choose) on your federal tax return, but only if you itemize deductions instead of taking the standard deduction. The total deduction for state and local taxes combined is capped at $10,000 per year under current federal rules.
Does North Carolina tax retirement income differently?
North Carolina does not tax Social Security or military retirement income, which is a significant benefit for retirees. However, distributions from 401(k)s, IRAs, and most other retirement accounts are taxed as regular income. Some states offer special treatment for retirement income — North Carolina does not, so check with a tax preparer about your specific sources.