North Carolina has a state income tax
Yes, North Carolina charges state income tax on wages, self-employment income, interest, dividends, and other earnings. The state tax rate is a flat 4.99% as of 2024, meaning everyone pays the same percentage regardless of income level. This is separate from federal income tax — you owe both.
North Carolina also taxes certain types of retirement income, though some retirement sources receive preferential treatment. The state does not have a sales tax on groceries, but it does tax most other purchases at 4.75%, plus local add-ons that vary by county.
Key Takeaways
- North Carolina's state income tax rate is 4.99% on all taxable income, applied uniformly to all residents and workers.
- You must file a North Carolina tax return if you earned income in the state, even if you also file federal taxes.
- Certain retirement income, including military pensions and some distributions from retirement accounts, may be partially or fully exempt from state tax.
- North Carolina taxes sales at 4.75% statewide, plus additional local taxes that range from 2% to 2.75% depending on your county.
Who has to file a North Carolina state tax return
You must file a North Carolina return if you lived in the state for any part of the tax year and had income that exceeds the filing threshold. For 2024, that threshold is $12,950 for single filers and $25,900 for married couples filing jointly — the same as the federal standard deduction, though North Carolina uses its own calculation.
If you worked in North Carolina but lived elsewhere, you still owe state tax on the income you earned here. You file using Form D-400, the North Carolina Individual Income Tax Return. The deadline is the same as federal: April 15 of the following year, or October 15 if you file an extension.
What income is taxed and what is exempt
North Carolina taxes wages, self-employment income, rental income, capital gains, interest, and dividends at the 4.99% rate. However, certain types of retirement income receive exemptions or partial exemptions. Military pensions are fully exempt. Distributions from IRAs and 401(k)s are taxable, but if you are age 59½ or older, you can exclude up to $35,000 per year from retirement account distributions.
Social Security benefits are not taxed by North Carolina. Pension income from your former employer may be partially exempt depending on when you retired and your age. The rules are specific to each type of pension, so if you receive retirement income, you should review the instructions for Form D-400 or contact the North Carolina Department of Revenue to determine what portion is taxable in your situation.
How to file your North Carolina state tax return
You can file online through the North Carolina Department of Revenue website, by mail, or through a tax preparation service. The state offers free online filing through its tax portal if your income is below a certain threshold — check the department's website for current income limits. Many tax software programs also allow you to file North Carolina returns directly.
If you file by mail, send Form D-400 and any required schedules to the North Carolina Department of Revenue at the address listed in the tax form instructions. Keep a copy for your records. If you owe money, you can pay online, by mail, or through an electronic funds withdrawal. If you are due a refund, direct deposit is the fastest method — typically two to three weeks if you file electronically.
Sales tax in North Carolina
North Carolina's statewide sales tax is 4.75%. Most counties add a local 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 exempt from sales tax, as are prescription medications and certain medical equipment.
Clothing and shoes are also exempt from sales tax in North Carolina. Prepared food and restaurant meals are taxable. If you buy something online from an out-of-state seller, you may owe use tax — which is North Carolina's version of sales tax on remote purchases — though many online retailers now collect it automatically.
Property tax in North Carolina
North Carolina also taxes real property (land and buildings). Property tax rates vary by county and are set by local governments, not the state. The statewide average is around 0.84% of assessed property value, but some counties charge as little as 0.4% and others as much as 1.2%. Your county assessor determines the assessed value of your home, and you receive a bill annually or semi-annually.
If you own a home, you may be may have access to to a homestead property tax exemption, which reduces the taxable value of your primary residence. The amount of the exemption varies by county. Seniors and disabled homeowners may may have access to for additional exemptions. Contact your county tax assessor's office to learn what exemptions apply in your area.
Tax credits and deductions available in North Carolina
North Carolina offers several tax credits that reduce the amount of tax you owe. The Earned Income Tax Credit (EITC) is available to low- and moderate-income workers and is claimed on your state return. The state also offers a child and dependent care credit, a credit for taxes paid to other states, and credits for certain types of charitable contributions.
When you file, you can claim the standard deduction or itemize deductions if your expenses exceed the standard amount. The standard deduction for 2024 is $12,950 for single filers and $25,900 for married couples filing jointly. If you itemize, you can deduct mortgage interest, property taxes, charitable donations, and certain other expenses. Keep receipts and documentation for any deductions you claim.
Frequently Asked Questions
Do I have to pay North Carolina income tax if I just moved to the state?
Yes, if you moved to North Carolina during the tax year, you owe state income tax on all income earned after you became a resident. You file a part-year resident return on Form D-400. If you worked in North Carolina before moving there, you owe tax on that income even if you no longer live in the state.
What happens if I don't file a North Carolina tax return?
The North Carolina Department of Revenue can assess penalties and interest on unpaid taxes. If you owe money, the penalty starts at 5% of the unpaid tax and increases over time. Interest accrues daily. If you filed late but are due a refund, there is no penalty, though you lose the refund if you do not file within three years.
Can I deduct federal income tax from my North Carolina state taxes?
No, North Carolina does not allow you to deduct federal income tax paid. However, you can deduct state and local property taxes up to $10,000 per year if you itemize deductions on your federal return, which may indirectly reduce your federal tax burden.
Is there a tax on retirement income in North Carolina?
Most retirement income is taxable, but there are exemptions. Military pensions are fully exempt. If you are 59½ or older, you can exclude up to $35,000 per year from retirement account distributions. Social Security is not taxed. Pension income from a former employer may be partially exempt depending on your age and when you retired.