North Carolina has a flat 4.5% income tax in 2026 — declining to 3.99% by 2027 and potentially lower.
North Carolina Tax Rate 2026
| Year | Tax Rate |
|---|---|
| 2023 | 5.25% |
| 2024 | 5.25% |
| 2025 | 4.75% |
| 2026 | 4.5% |
| 2027 | 3.99% |
North Carolina has been aggressively cutting its income tax rate.
How North Carolina Flat Tax Works
North Carolina switched from a progressive tax system to a flat tax in 2014 and has been steadily lowering the rate since. A flat tax means everyone pays the same percentage regardless of income, which simplifies filing and benefits higher earners proportionally more. At 4.5% in 2026 (dropping to 3.99% in 2027), NC now has one of the more competitive rates in the Southeast.
| Taxable Income | Tax Rate | Tax Amount |
|---|---|---|
| $25,000 | 4.5% | $1,125 |
| $50,000 | 4.5% | $2,250 |
| $75,000 | 4.5% | $3,375 |
| $100,000 | 4.5% | $4,500 |
| $150,000 | 4.5% | $6,750 |
| $200,000 | 4.5% | $9,000 |
| $500,000 | 4.5% | $22,500 |
North Carolina Standard Deduction
| Filing Status | 2026 Deduction |
|---|---|
| Single | $12,750 |
| Married Filing Jointly | $25,500 |
| Married Filing Separately | $12,750 |
| Head of Household | $19,125 |
NC’s standard deduction is close to federal levels.
No Personal Exemption
North Carolina eliminated personal exemptions when it adopted the flat tax. The higher standard deduction replaced them.
North Carolina Tax Calculation Example
Married couple earning $90,000:
- Gross income: $90,000
- Standard deduction: -$25,500
- Taxable income: $64,500
- Tax (4.5%): $2,903
North Carolina vs. Neighboring States
North Carolina’s declining flat rate is making it increasingly competitive with neighboring states. Tennessee has no income tax at all, but NC’s rate will soon undercut Georgia and approach Virginia. For workers and retirees weighing relocation within the Southeast, NC offers a strong combination of moderate taxes, growing metro areas, and lower cost of living than the Northeast.
| State | Rate Type | Top Rate |
|---|---|---|
| Tennessee | None | 0% |
| Virginia | Progressive | 5.75% |
| South Carolina | Progressive | 6.4% |
| Georgia | Flat | 5.39% |
| North Carolina | Flat | 4.5% |
NC’s rate will be lower than Georgia by 2027.
North Carolina Retirement Income
NC’s retirement tax picture is mixed. Social Security is fully exempt and military retirement receives the same treatment, but 401(k) withdrawals, IRA distributions, and private pensions are all taxed at the flat rate. This makes NC less attractive for retirees than Florida or Tennessee, though the declining rate helps close the gap.
| Income Type | NC Treatment |
|---|---|
| Social Security | Not taxed |
| 401(k)/IRA withdrawals | Fully taxed |
| Traditional pension | Fully taxed |
| Military retirement | Not taxed |
| Government pension (certain) | Vested before 1989: Exempt |
NC taxes most retirement income except Social Security and military retirement.
Bailey Settlement
Government employees vested in retirement plans before August 12, 1989 may be exempt from NC tax on retirement income (the “Bailey settlement”).
North Carolina Property Tax
| Metric | North Carolina |
|---|---|
| Average effective rate | 0.73% |
| National rank | 37th (below average) |
| On $350,000 home | ~$2,555 |
NC has relatively low property taxes.
Property Tax by County
| County | Average Rate |
|---|---|
| Durham | 1.07% |
| Mecklenburg (Charlotte) | 0.95% |
| Wake (Raleigh) | 0.79% |
| Forsyth (Winston-Salem) | 0.94% |
| Guilford (Greensboro) | 1.01% |
| Buncombe (Asheville) | 0.57% |
North Carolina Sales Tax
| Rate Type | Amount |
|---|---|
| State sales tax | 4.75% |
| Local additions | 2-2.75% |
| Total range | 6.75-7.5% |
Sales Tax by Area
| Location | Total Rate |
|---|---|
| Charlotte | 7.25% |
| Raleigh | 7.25% |
| Durham | 7.5% |
| Asheville | 7% |
| Wilmington | 7% |
North Carolina Tax Credits
| Credit | Amount |
|---|---|
| Child Tax Credit | $125 per child |
| Earned Income Credit | None (NC eliminated) |
| Credit for Children with Disabilities | Up to $2,500 |
| NC 529 Contributions | Not deductible |
NC eliminated its earned income credit — a significant change for low-income residents.
No NC 529 Tax Benefit
North Carolina does not offer a state income tax deduction or credit for 529 plan contributions.
| State | 529 Deduction? |
|---|---|
| North Carolina | No |
| Virginia | Yes |
| Georgia | Yes |
| South Carolina | Yes |
Who Must File North Carolina Taxes?
You must file if:
- NC resident with gross income exceeding standard deduction
- Part-year resident with NC income
- Non-resident with NC source income
Filing Threshold
| Filing Status | Threshold |
|---|---|
| Single | $12,750 |
| Married Filing Jointly | $25,500 |
If income exceeds your standard deduction, you file.
North Carolina Filing Options
| Method | Cost |
|---|---|
| NC e-File | Free |
| Commercial software | $0-$50 |
| Tax professional | $100-$300 |
Filing deadline: April 15
North Carolina Capital Gains
NC taxes capital gains as ordinary income at the flat 4.5% rate:
| Gain Type | State Rate |
|---|---|
| Short-term | 4.5% |
| Long-term | 4.5% |
No exclusion or preferential treatment.
North Carolina Local Income Tax
NC has no local income taxes. Only state income tax applies.
North Carolina Business Taxes
| Tax | Rate |
|---|---|
| Corporate income tax | 2.5% |
| Franchise tax | $1.50 per $1,000 of net worth |
| Pass-through | Personal rate (4.5%) |
NC has very low corporate tax — one of the lowest in the nation.
Is North Carolina Tax-Friendly?
Good for:
- High earners (flat 4.5%, declining)
- Military retirees (full exemption)
- Social Security recipients
- Business owners (2.5% corporate rate)
- Those seeking low property tax
Less favorable for:
- Pension/401(k) retirees (fully taxed)
- Low-income workers (no EITC)
- 529 savers (no state deduction)
North Carolina vs. South Carolina
| Factor | NC | SC |
|---|---|---|
| Income tax rate | 4.5% | Up to 6.4% |
| Social Security | Not taxed | Not taxed |
| Pensions | Taxed | $10,000 exempt |
| Property tax | 0.73% | 0.53% |
| Sales tax | 6.75-7.5% | 6-9% |
NC has lower income tax; SC has more retirement exemptions.
Moving to North Carolina
Pros:
- Decreasing tax rate (3.99% by 2027)
- Low property taxes
- No local income taxes
- Military retirement exempt
- Growing job market
Cons:
- Pensions/401(k) fully taxed
- No EITC for low-income
- No 529 deduction
- Sales tax 6.75-7.5%
Bottom Line
North Carolina has a flat 4.5% income tax declining to 3.99% by 2027 — among the lowest income tax rates on the East Coast. Low property taxes (0.73%) add to the appeal. However, NC taxes pensions and 401(k)/IRA withdrawals, making it less ideal for non-military retirees compared to neighbors like Tennessee (0%) or South Carolina (partial exemption). The state is very business-friendly with a 2.5% corporate rate.
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