Complete Guide: North Carolina Income Tax (2025)
Calculating your take-home pay in North Carolina is simpler than in most states, thanks to its flat tax rate. For the 2025 tax year, North Carolina has lowered its individual income tax rate to 4.25%, continuing a multi-year trend of tax reduction. Whether you are moving to Charlotte, retiring in Asheville, or just planning your 2025 budget, understanding how this flat tax interacts with federal brackets is key to predicting your actual net income. You can verify your net income with our North Carolina Paycheck Calculator.
2025 Tax Update
For 2025, the North Carolina individual income tax rate is 4.25%. This applies to all taxable income, regardless of how much you earn. There are no progressive tax brackets at the state level in NC.
How North Carolina Taxes Are Calculated
North Carolina uses a straightforward formula to determine your state tax liability. Unlike the federal system, where higher earnings are taxed at higher percentages, NC applies the same percentage to everyone's taxable income.
Deduct the NC Standard Deduction for your filing status.
Apply the 4.25% flat tax rate to the result.
North Carolina Standard Deductions (2025)
Your "Taxable Income" in North Carolina is roughly your gross income minus the standard deduction. North Carolina Department of Revenue (NCDOR) has its own standard deduction amounts that differ from the federal ones.
| Filing Status | NC Standard Deduction |
|---|---|
| Single | $12,750 |
| Married Filing Jointly | $25,500 |
| Head of Household | $19,125 |
| Married Filing Separately | $12,750 |
Example Calculation
Let's look at a practical example. Imagine you are a Single filer living in Raleigh earning $60,000 per year.
* This is just the state tax. Federal and FICA taxes calculate separately.
Why is North Carolina's Tax Rate Falling?
If you've lived in North Carolina for a decade, you remember a very different tax system. Until 2013, NC had a progressive tax structure with a top rate as high as 7.75%, one of the highest in the South.
Since 2013, the state legislature has pursued aggressively lowering income taxes to compete with neighbors like Tennessee (0% income tax) and Florida (0%). The rate has dropped steadily:
Do Counties Like Wake or Mecklenburg Charge Extra Income Tax?
A common question for newcomers moving to Charlotte (Mecklenburg County) or Raleigh (Wake County) is whether there is a local income tax on top of the state tax.
Good News: No. North Carolina counties and cities are prohibited from levying their own income taxes.
Unlike states like New York or Ohio, where you might see city residents paying an extra 3% or more, your 4.25% state rate is the final word on income tax across the entire state. However, property taxes and sales taxes do vary by location.
Property Tax Rates by County (2024-2025 Estimates)
While income tax is flat, property tax is where the real variance lies. Here are distinct rates for major counties (per $100 of assessed value):
North Carolina Tax Credits & Deductions
Beyond the Standard Deduction, North Carolina offers specific deductions and credits that can further lower your tax bill. Unlike federal law, NC does not have a "Standard vs Itemized" choice in the same way—you typically take the NC Standard Deduction, but you can also claim specific adjustments.
Child Deduction
Families with eligible children can claim a deduction (not a credit) based on their income level. Unlike the federal Child Tax Credit, the value of this deduction phases out as income rises.
- AGI under $40,000 (Joint): You can deduct $3,000 per child.
- AGI $40,000 - $60,000: Deduction drops to $2,500.
- AGI $60,000 - $80,000: Deduction is $2,000.
- AGI $80,000 - $100,000: Deduction is $1,500.
- AGI $100,000 - $120,000: Deduction is $1,000.
- AGI $120,000 - $140,000: Deduction is $500.
- AGI over $140,000: $0 deduction (fully phased out).
Retiring in North Carolina: The Bailey Settlement
While North Carolina taxes most private pension income and withdrawals from 401(k)s/IRAs, there is a massive exception known as the Bailey Settlement.
You pay $0 state tax on your retirement benefits if:
- You were "vested" in a qualifying government retirement system (federal, state, or local) as of August 12, 1989.
- This includes many military pensions, federal civil service pensions, and NC state teacher pensions.
For everyone else (vested after 1989), retirement income is fully taxable (except Social Security, which is always exempt).
How Does NC Compare to Neighbors?
North Carolina is often cited as a tax-friendly destination, but how does the 4.25% flat rate stack up against its borders?
| State | Income Tax Rate | Verdict |
|---|---|---|
| South Carolina | 0% - 6.4% (Progressive) | NC wins for high earners; SC wins for low earners. |
| Virginia | 2% - 5.75% (Progressive) | NC is significantly cheaper (4.25% vs 5.75% top rate). |
| Georgia | 5.49% (Flat) | NC is lower by over 1.2%. |
| Tennessee | 0% (No Income Tax) | Tennessee is the clear winner for pure income tax savings. |
Property & Sales Tax Context
Low income tax is great, but total tax burden matters. How does the rest of NC stack up?
Base rate is 4.75%. Local counties add 2.00% to 2.75%. The average total sales tax is roughly 6.98%.
NC property taxes are relatively low compared to the national average. The effective rate is ~0.77%. A $300,000 home typically costs about $2,300/year in taxes, though this varies significantly by county (Wake and Mecklenburg are higher).
NC 529 Plan: The "NC 529"
While North Carolina used to offer a tax deduction for 529 contributions, that deduction was eliminated in 2014. You can still contribute to the NC 529 Plan for tax-free growth and withdrawals for education, but you do not get an immediate break on your state income tax return for contributing.
Do You Need to Pay Estimated Taxes in NC?
North Carolina requires you to make estimated income tax payments if you expect to owe $1,000 or more in NC tax when you file your return, and your withholding from salary/pension won't cover at least 90% of your tax liability.
This is common for freelancers, business owners, and those with significant investment income. Failing to pay these quarterly (Form NC-40) can result in penalties, even if you pay the full amount by April 15th.
Common Questions
When will the rate drop to 3.99%?
Under current legislation, the North Carolina individual income tax rate is scheduled to decrease to 3.99% starting in tax year 2026. If revenue triggers are met, it may drop even further in subsequent years.
Does NC tax 401(k) contributions?
Generally, no. Contributions to a traditional 401(k) or 403(b) are made pre-tax for both federal and state purposes. This means they reduce your taxable income before the tax rate is applied. Roth contributions, however, are made with after-tax dollars.
Does North Carolina tax Social Security benefits?
No. North Carolina is one of the states that fully exempts Social Security benefits from state income tax. If your federal AGI includes Social Security income, you can deduct that amount on your NC tax return (Form D-400).
Do I have to file an NC return?
You must file a North Carolina individual income tax return (Form D-400) if you are required to file a federal return and your gross income exceeds the NC Standard Deduction for your filing status (e.g., $12,750 for Single filers).
Are military pensions taxed in NC?
Yes, unless you qualify for the Bailey Settlement (vested before Aug 12, 1989). However, recent legislation has created deductions for certain military retirement pay, so check the latest instructions on the NCDOR website for specific military exemptions.