North Carolina charges a flat income tax rate on wages, retirement income, and investment gains

North Carolina has a single income tax rate that applies to most residents. As of 2024, that rate is 4.99 percent on your federal taxable income. This means if you earn $50,000 in wages, you owe roughly $2,495 in state income tax before any credits or deductions reduce what you actually pay.

The state also taxes capital gains, dividends, and retirement distributions at the same 4.99 percent rate. If you receive income from sources other than wages — such as interest, rental property, or a business you own — North Carolina taxes that too. The main exception is Social Security benefits, which are not taxed by the state.

North Carolina does not have a sales tax on groceries, but it does tax most other purchases at 4.75 percent, plus any local add-ons your county or city applies. Property tax varies by county and is based on the assessed value of real estate you own.

Key Takeaways

  • North Carolina's state income tax rate is 4.99 percent on wages, investment income, and retirement distributions.
  • Social Security benefits are not subject to North Carolina state income tax.
  • The state sales tax is 4.75 percent on most goods, with local taxes added on top depending on where you live.
  • Property tax is assessed by county and depends on the market value of your home or land.
  • You file North Carolina taxes using Form D-400 if you owe state income tax, usually at the same time you file federal taxes.

Who has to file a North Carolina state tax return

You must file a North Carolina state return if your gross income exceeds the filing threshold for your filing status. For the 2023 tax year, a single person with income over $12,750 must file. A married couple filing jointly must file if their combined income exceeds $25,500. These thresholds change each year, so check the current year's threshold before deciding whether you need to file.

Even if your income falls below the threshold, you may want to file anyway if you had taxes withheld from your paychecks or if you are due a refund. Filing allows you to recover that money. You also must file if you owe North Carolina taxes, regardless of whether you meet the income threshold.

How withholding and estimated taxes work

If you work as an employee, your employer withholds North Carolina income tax from your paycheck based on the W-4 form you fill out. The amount withheld depends on how many dependents you claim and your expected annual income. If too much is withheld, you get a refund when you file. If too little is withheld, you owe money.

If you are self-employed or receive income that is not subject to withholding — such as rental income or business profits — you may need to pay estimated taxes quarterly. These are payments you make directly to the state in March, June, September, and January to cover the tax you expect to owe. Paying estimated taxes on time helps you avoid penalties and interest.

Deductions and credits that reduce what you owe

North Carolina allows you to deduct the federal income tax you paid to reduce your state taxable income. This is called the federal tax deduction and is one of the largest deductions available to most filers. You also can deduct contributions to a traditional IRA or a 401(k) plan, which lowers your taxable income for the year you make the contribution.

The state also offers credits that directly reduce your tax bill. The Earned Income Tax Credit (EITC) is available to low- and moderate-income workers and can result in a refund even if you owe no tax. The Child and Dependent Care Credit helps offset the cost of childcare. Military service members may may have access to for the Military Service Member Tax Credit. These credits are worth checking into because they can lower your bill significantly.

When and how to file your North Carolina return

North Carolina tax returns are due on the same day as your federal return, which is typically April 15. If April 15 falls on a weekend or holiday, the important date moves to the next business day. You can request an extension to file by October 15, but any taxes you owe are still due by April 15 — the extension only gives you more time to submit your paperwork, not to pay.

You file using Form D-400, the North Carolina Individual Income Tax Return. You can file by mail, by phone, or electronically through the North Carolina Department of Revenue website. E-filing is faster and reduces the chance of errors. If you use tax software or work with a tax preparer, they can file electronically on your behalf.

Special situations: retirement, military, and out-of-state income

If you are retired and receiving a pension from a North Carolina employer, that income is taxed at the 4.99 percent rate. However, military retirement pay is partially exempt — you can exclude up to $35,000 of military retirement income per year from your North Carolina taxable income. This exclusion applies only to military pensions, not to other retirement income.

If you moved to North Carolina during the year or moved out of state, you may owe taxes to both states on income earned while you lived there. North Carolina allows a credit for taxes paid to other states to prevent double taxation, but you need to file in both states and claim the credit on your North Carolina return. If you worked remotely for an out-of-state employer while living in North Carolina, you owe North Carolina tax on that income.

Where to find forms and get help with your return

The North Carolina Department of Revenue website (dor.nc.gov) has all current tax forms, instructions, and filing information. You can read Form D-400 and related schedules there. The site also has a phone line where you can ask questions about your specific situation, though wait times can be long during tax season.

If you cannot afford to pay a tax preparer, the IRS runs a free tax preparation program called VITA (Volunteer Income Tax information) at libraries and community centers across North Carolina. VITA volunteers can help you file both your federal and state returns at no cost if your income is below a certain threshold. Search for "VITA near me" on the IRS website to find a location in your area.

Frequently Asked Questions

Does North Carolina tax Social Security benefits?

No. North Carolina does not tax Social Security retirement benefits, survivor benefits, or disability benefits. If Social Security is your only income, you do not owe North Carolina state income tax on it.

What is the difference between the state income tax rate and the sales tax rate?

The state income tax rate of 4.99 percent applies to your earnings and investment income. The sales tax rate of 4.75 percent applies to most purchases you make in stores. Some counties and cities add local sales tax on top of the state rate, so your total sales tax can be higher depending on where you shop.

Can I file my North Carolina return if I do not owe federal taxes?

Yes. You can file a North Carolina return even if you have no federal tax liability. This is worth doing if you had state taxes withheld from your paychecks, because filing allows you to get a refund of the overpayment.

What happens if I do not file a North Carolina tax return when I am supposed to?

The state charges penalties and interest on unpaid taxes. The penalty starts at 5 percent of the unpaid tax and increases the longer you wait. Interest accrues daily. Filing late is better than not filing at all, because the penalty is smaller if you file within a few months than if you ignore the return for years.

Do I owe North Carolina taxes if I live in another state but work remotely for a North Carolina company?

No. You owe taxes to the state where you live and work, not to the state where your employer is located. If you live in South Carolina and work remotely for a North Carolina employer, you owe South Carolina taxes, not North Carolina taxes.