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North Carolina Tax Guide: Declining Flat Tax

Understand North Carolina's competitive flat income tax rate and all state tax obligations for the 2025 tax year.

4.5%
Flat Income Tax Rate
6.99%
Combined Sales Tax
0.80%
Property Tax Rate
#33
Tax Burden Rank

Tax Overview

North Carolina uses a flat income tax rate that has been declining steadily through legislated reductions. The rate for 2025 is approximately 4.5%, down from 5.25% just a few years ago, with a target of reaching 3.99% by 2026 and potentially lower in subsequent years. These reductions have made North Carolina significantly more competitive with neighboring states and have attracted businesses and residents.

Sales tax in North Carolina has a state rate of 4.75%, with local taxes adding roughly 2.25%, creating a combined average around 6.99%. The state exempts most groceries from sales tax, though prepared food is taxable. North Carolina also offers a periodic sales tax holiday for back-to-school shopping.

Property taxes in North Carolina are moderate, with effective rates around 0.80%. Rates vary significantly by county, with urban counties generally having higher rates. The state offers a homestead exclusion for seniors (age 65+) and disabled individuals with income below certain thresholds, which can exclude up to $25,000 of assessed value. North Carolina does not tax Social Security benefits and provides a deduction for certain government retirement income.

Income Tax

North Carolina's flat rate continues to decline, targeting 3.99% by 2026 and potentially lower. The state has been one of the most aggressive in reducing income tax rates.

Flat Tax Rate: 4.50%

Sales Tax

State Rate4.75%
Avg. Local Rate2.25%
Combined Rate6.99%

Property Tax

Effective Rate0.80%
Median Annual Bill$1,668

Key Deductions in North Carolina

  • ✓North Carolina standard deduction of $12,750 (single) or $25,500 (married filing jointly)
  • ✓Child deduction ($2,500 per qualifying child)
  • ✓Bailey Settlement exemption for government retirees (vested before 8/12/1989)
  • ✓NC 529 plan contribution deduction (no state deduction, but earnings grow tax-free)
  • ✓Property tax homestead exclusion for seniors/disabled
  • ✓Earned income tax credit (matching a portion of federal EITC)

Filing Information

Filing Deadline: April 15

Tax Authority: North Carolina Department of Revenue

Phone: (877) 252-3052

Website: https://www.ncdor.gov

Frequently Asked Questions

How much lower will NC income taxes go?
North Carolina has legislated a phased reduction targeting 3.99% by 2026. Additional reductions beyond that level have been discussed but would require further legislative action. The state has cut its rate from 5.25% in just a few years.
Does North Carolina tax Social Security?
No, North Carolina fully exempts Social Security benefits from state income tax. The state also provides an exemption for certain government retirees under the Bailey Settlement (those vested before August 12, 1989).
Are groceries taxed in North Carolina?
Most unprepared grocery food items are exempt from North Carolina sales tax. Prepared food, dietary supplements, and certain other food items remain taxable at the standard rate.
How do NC property taxes compare to neighboring states?
North Carolina's property tax rates are moderate, averaging about 0.80%. This is lower than Virginia (0.82%) and significantly lower than some northern states, but comparable to South Carolina and Georgia.

Neighboring State Guides

VirginiaTennesseeGeorgiaSouth Carolina

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