Taxes in North Carolina: Tax Guide 2026
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Taxes in North Carolina: State Tax Guide 2026
Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.
North Carolina has been on a sustained path of income tax reduction. The state switched from a progressive system to a flat rate in 2014, and that rate has been falling steadily — from 5.25% down to ~4.25% for 2026, with a planned phase-down to 3.99% by 2027. Combined with moderate property taxes and a competitive cost of living, the Research Triangle and Charlotte metros are drawing transplants from higher-tax states.
North Carolina Income Tax Rates (2026)
North Carolina uses a flat income tax:
| Tax Rate | Taxable Income Range |
|---|---|
| ~4.25% | All taxable income |
The rate was 5.25% through 2021, dropped to 4.99% in 2022, 4.75% in 2023, 4.50% in 2024, 4.25% in 2025, and is scheduled to reach 3.99% by 2027.
North Carolina’s standard deduction is ~$12,750 for single filers and ~$25,500 for married filing jointly. The state does not allow personal exemptions.
Sales Tax
| Component | Rate |
|---|---|
| State base rate | 4.75% |
| County add-on | 2.00%–2.75% |
| Average combined rate | ~6.99% |
All 100 North Carolina counties levy a local sales tax, typically adding 2.00%–2.75% to the state rate. Most transactions face a combined rate near 7%.
Exempt from sales tax: Most unprepared groceries (exempt from the state 4.75% but subject to a reduced 2% local rate in most counties), prescription medications, and certain medical supplies.
Property Tax
| Metric | Amount |
|---|---|
| Average effective rate | ~0.80% |
| National average | 0.99% |
Property taxes are levied by counties and municipalities in North Carolina. Revaluations occur every four to eight years (counties set the schedule). The state mandates that property be assessed at 100% of market value.
Homestead exclusion: Qualifying homeowners aged 65+ or totally disabled with income below ~$36,700 can exclude ~$25,000 or 50% of the appraised value of their home (whichever is greater) from property tax.
Example: A home valued at $350,000 in Wake County (Raleigh) at the county + city combined rate of approximately ~$1.03 per $100 pays about ~$3,605 per year.
Other Taxes
- Estate and inheritance tax: North Carolina repealed its estate tax in 2013. There is no inheritance tax.
- Capital gains: Taxed as ordinary income at the flat ~4.25% rate.
- Franchise tax: Corporations pay a franchise tax of ~$1.50 per $1,000 of the largest of net worth, investment in tangible property, or 55% of appraised ad valorem property in the state. Minimum tax is ~$200.
- Fuel tax: ~$0.405 per gallon (adjusted semi-annually using a formula tied to population and energy prices).
- Cigarette tax: ~$0.45 per pack.
- Alcohol tax: Liquor is sold through state-controlled ABC stores, which include significant markups. Beer and wine are taxed at lower rates.
- No local income taxes: North Carolina does not permit county or municipal income taxes.
Tax Breaks and Credits
- No tax on Social Security: North Carolina does not tax Social Security benefits.
- Military retirement deduction: North Carolina exempts military retirement pay from state income tax for retirees with at least 20 years of service (or medical retirement).
- Bailey Settlement: State, local government, and federal retirees with five years of service as of August 12, 1989, receive a full exemption on their government retirement benefits. This is one of the most significant retirement tax breaks in the state.
- Child deduction: ~$2,500 per qualifying child.
- 529 plan deduction: North Carolina does not offer a state tax deduction for 529 plan contributions.
- Renewable energy credit: Expired for most installations, though federal credits still apply.
- NC Earned Income Tax Credit: Not currently offered — North Carolina is one of the few states with an income tax that does not have a state-level EITC.
Key Takeaways
- North Carolina’s flat ~4.25% income tax rate is dropping annually, scheduled to reach 3.99% by 2027
- No state tax on Social Security benefits and military retirement pay exemptions make it retiree-friendly
- Sales tax averages ~6.99% combined, near the national average
- Property taxes are below the national average at ~0.80%, with a meaningful homestead exclusion for seniors
- No state estate or inheritance tax
Next Steps
- Compare North Carolina to other states at State Income Tax Comparison: All 50 States Ranked
- Understand your federal obligation with the Federal Income Tax Guide 2026
- Make sure you claim everything you can — Tax Deductions You’re Probably Missing
- Ready to file? See How to File Your Taxes Step by Step
Tax information is for educational purposes only. Consult a licensed tax professional.