Yes, North Carolina has a state income tax
North Carolina taxes your income at the state level. As of 2024, the state income tax rate is a flat 4.99% on all income brackets. This means whether you earn $30,000 or $300,000 per year, you pay the same percentage to North Carolina — unlike the federal system, which uses brackets that increase with income.
If you live in North Carolina or work there, you will owe state income tax on wages, self-employment income, investment income, and retirement distributions. The state also taxes capital gains and interest. North Carolina does not have a separate capital gains tax; those gains are taxed as regular income at the same 4.99% rate.
North Carolina is one of 41 states that collects income tax. Only nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — have no state income tax at all. New Hampshire taxes only dividend and interest income, not wages.
Key Takeaways
- North Carolina's state income tax rate is 4.99% on all income, applied as a flat rate regardless of how much you earn.
- You owe North Carolina income tax if you live in the state or earned income while working there, even if you live elsewhere now.
- The state taxes wages, self-employment income, investment gains, interest, and retirement distributions all at the same 4.99% rate.
- Your employer withholds state income tax from your paycheck using Form NC-4, similar to federal withholding but separate.
- If you moved to North Carolina or left the state mid-year, you may file a part-year resident return to report only the income earned while you lived there.
How North Carolina withholds state income tax from your paycheck
When you start a job in North Carolina, your employer asks you to complete Form NC-4, the North Carolina Employee Withholding Certificate. This form tells your employer how much state income tax to take from each paycheck. It works the same way as the federal Form W-4, but it is separate — completing one does not affect the other.
Your employer then withholds 4.99% of your taxable income (after accounting for the withholding allowances you claimed on the NC-4) and sends that money to the North Carolina Department of Revenue on your behalf. The amount withheld appears on your pay stub as a separate line item from federal withholding.
If you did not complete an NC-4 when hired, your employer will withhold at the highest rate, which means you will likely overpay and receive a refund when you file your return. You can update your NC-4 at any time if your situation changes — for example, if you get married, have a child, or take a second job.
Who must file a North Carolina state income tax return
You must file a North Carolina return if you lived in the state for any part of the tax year and your income exceeds the filing threshold. For 2023 tax returns (filed in 2024), the threshold is $12,200 for single filers and $24,400 for married couples filing jointly. These thresholds change each year, so check the current year's requirement before filing.
Even if your income is below the threshold, you should file if your employer withheld state income tax from your paychecks. Filing allows you to claim a refund of the overpaid amount. You must also file if you owe self-employment tax or want to claim the North Carolina Earned Income Tax Credit, which is a refundable credit for lower-income workers.
If you moved to North Carolina partway through the year or left the state partway through, you file as a part-year resident. You report only the income you earned while living in North Carolina and pay tax only on that portion. You will need to show the date you moved in or out of the state.
North Carolina tax credits and deductions that reduce what you owe
North Carolina offers several credits that can lower your state income tax bill. The Earned Income Tax Credit is available to low- and moderate-income workers and is refundable, meaning you can receive money back even if you owe no tax. The amount depends on your income and filing status. You must also claim the federal Earned Income Tax Credit to claim the state version.
The state also allows a child and dependent care credit for expenses you paid to care for a child or dependent while you worked. This is separate from the federal credit and calculated differently, so you may be able to claim both. North Carolina also offers credits for education expenses, including tuition and student loan interest, though these have income limits.
On the deduction side, North Carolina allows you to deduct federal income taxes paid, which can significantly lower your taxable income. You can also deduct state and local taxes (SALT) up to $10,000 total, the same limit that applies to your federal return. Standard deduction amounts vary by age and filing status and are adjusted each year.
How to file your North Carolina state income tax return
You file your North Carolina return using Form NC-1040, the state's individual income tax return. You can file by paper or electronically. The state offers free filing through the IRS Free File program if your income is below a certain threshold (usually around $73,000), which includes free North Carolina state filing as well.
If you use tax software like TurboTax, H&R Block, or TaxAct, those programs can file both your federal and North Carolina returns together. You enter your information once, and the software calculates your state tax liability and generates the NC-1040 automatically. The filing important date is the same as federal — April 15 of the following year, unless that date falls on a weekend or holiday.
You can also hire a tax professional to prepare and file your return. The North Carolina Department of Revenue does not prepare returns for you, but it does offer a phone line and website with forms and instructions. If you cannot file by April 15, you can request an extension, which gives you until October 15 to file without penalty, though you still owe any taxes due by April 15.
What happens if you move out of North Carolina
If you move out of North Carolina during the tax year, you become a part-year resident for that year. You report only the income you earned while living in the state and pay North Carolina tax only on that portion. You will file Form NC-1040 marked as a part-year return and include the date you moved.
Once you move to another state permanently, you no longer owe North Carolina income tax on income earned after you leave. However, if you earned income in North Carolina before moving, you still owe tax on that income for the year you moved. Some states have reciprocal agreements with North Carolina, meaning you may not owe tax to both states on the same income, but you still must file to report the situation.
If you move to a state with no income tax, such as Florida or Texas, you will not owe state income tax on future earnings. However, you must still file a final North Carolina return for the year you moved to report the income earned while you lived there. Keep documentation of your move date — a lease, utility bill, or driver's license with the new address — in case the Department of Revenue questions your residency status.
North Carolina income tax for retirees and retirement income
North Carolina taxes retirement income, including distributions from 401(k)s, IRAs, and pension plans. However, the state offers a significant break: if you are age 59½ or older, you can exclude up to $35,000 per year of retirement income from taxation. This exclusion applies to distributions from retirement accounts, pensions, and annuities, but not to Social Security benefits.
Social Security benefits are not taxed by North Carolina, even if they are taxed at the federal level. This is one of the few states that does not tax Social Security. If you are retired and receiving Social Security plus retirement account distributions, only the retirement account portion counts toward your $35,000 exclusion.
If you are under 59½ and receiving retirement distributions, you owe the full 4.99% state tax on those distributions. Military pensions and certain government pensions may have different rules, so check with the Department of Revenue if you receive a government pension. The exclusion is claimed on your state return and reduces your taxable income before the 4.99% rate is applied.
Frequently Asked Questions
Does North Carolina tax Social Security income?
No. North Carolina does not tax Social Security benefits at all, regardless of your total income or filing status. This applies to all types of Social Security — retirement, survivor, and disability benefits. If Social Security is your only income, you will not owe North Carolina state income tax.
What if I worked in North Carolina but live in another state?
You owe North Carolina income tax on the income you earned while working there. You file as a part-year resident or nonresident, depending on how long you worked in the state. You report only the North Carolina income on your state return. Some states offer credits for taxes paid to other states to avoid double taxation, so check your home state's rules as well.
Can I claim the same deductions on my North Carolina return that I claim on my federal return?
Not always. North Carolina allows some federal deductions but not others. For example, you can deduct federal income taxes paid, but you cannot deduct mortgage interest or charitable contributions on your state return — North Carolina uses a standard deduction instead. Review the NC-1040 instructions to see which deductions explore at the state level.
What is the penalty for not filing a North Carolina return?
If you owe tax and do not file, the Department of Revenue charges a failure-to-file penalty of 5% per month (up to 25%) plus interest on the unpaid tax. If you file late but pay on time, the penalty is smaller. If you do not owe tax, there is no penalty for filing late, but you may miss out on a refund if you had taxes withheld.
Do I need to file if I only earned income from self-employment?
Yes, if your self-employment income exceeds the filing threshold for your status. You must also file if you owe self-employment tax to the federal government, even if your North Carolina income is below the state threshold. Self-employment income is taxed at 4.99% by North Carolina, the same rate as wages.