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North Carolina State Taxes: What You’ll Pay in 2025

Posted on 12/20/24 by Maura Kelly Lannan

North Carolina is moderately tax-friendly to residents over 65. Social Security income is not taxed, and there are no inheritance or estate taxes. Its flat income tax rate, scheduled to gradually decrease until tax year 2026, places it in the bottom third of states.

The big picture:

  • Income tax: 4.5 percent
    North Carolina’s flat income tax rate for tax year 2024 was 4.5 percent.
  • Property tax: 0.82 percent of a home’s assessed value (average) 
    Real estate taxes are levied locally and vary depending on where you live, with an average property tax rate in North Carolina of 0.82 percent of a home’s assessed value in 2021, according to the Tax Foundation.
  • Sales tax: 7 percent (average combined state and local)
    The state levies a 4.75 percent sales tax statewide, but municipalities can add up to 2.75 percent in local sales tax. The combined average sales tax rate is 7 percent, according to the Tax Foundation.
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Getty/AARP

How is income taxed in North Carolina?

North Carolina has a flat income tax rate, which means residents pay the same individual income tax rate regardless of income level.

Under recent tax changes, North Carolina’s individual income tax rate will decrease every year until it reaches 3.99 percent for tax year 2026. The rate for tax year 2024 was 4.5 percent. That decreased to 4.25 percent for tax year 2025.

Watch the video below to learn how to identify your 2024 federal income tax brackets.

Understanding Your 2024 Income Tax

Are pensions or retirement income taxed in North Carolina?

Most retirement income is taxed as individual income. For tax year 2024, the rate was 4.5 percent.

North Carolina cannot tax certain retirement benefits, such as the North Carolina Teachers' and State Employees’ Retirement System and the North Carolina Consolidated Judicial Retirement System, if a retiree qualifies. Certain military retirement pay also is not taxed for qualified military retirees.

The AARP Retirement Calculator can help you determine if you are saving enough to retire when — and how — you want.

What about investment income?

Capital gains from investments are taxed as individual income. For tax year 2024, capital gains were taxed at the flat state income tax rate of 4.5 percent.

Does North Carolina tax Social Security benefits?

No, but you may pay federal taxes on a portion of your Social Security benefits, depending on your income. Up to 50 percent of your benefits will be taxed if you file an individual tax return and make $25,000 to $34,000 in total income — or if you’re a married couple filing jointly and make $32,000 to $44,000 in total income. Up to 85 percent of your benefits will be taxed by the federal government if your total income is more than $34,000 individually or $44,000 as a couple.

AARP's Social Security Calculator can assist you in determining when to claim and how to maximize your Social Security benefits.

How is property taxed in North Carolina?

The average property tax rate in North Carolina was .82 percent of a home’s assessed value in 2021, according to the Tax Foundation.

Property taxes vary widely by county in North Carolina. The lowest median property tax paid was $701 in Bertie County, while the highest was $3,784 in Orange County, according to 2021 data from the Tax Foundation.

Your property taxes are locally assessed and collected by counties. Your home’s appraised value and the tax rate set by counties and municipalities are used to calculate your property taxes. More information on how your property taxes are calculated is on the North Carolina Department of Revenue (NCDOR) website. Information on how to appeal your home’s appraised property value can be found on the state’s website.

Counties also tax motor vehicles and personal property such as machinery and office furniture.

What about sales and other taxes?

  • Sales tax: North Carolina’s sales tax is 4.75 percent and municipalities can add up to 2.75 percent in local sales tax, for a combined average sales tax rate of 7 percent, according to the Tax Foundation.
  • Exemptions: Groceries, except for candy and soda, are exempt from state sales tax, but a 2 percent local tax is charged. Other examples of sales tax-exempt items include prescription drugs and some medical supplies.
  • Gas and diesel: The motor fuels tax, which includes gasoline and diesel, is 40.4 cents per gallon and is charged instead of sales tax.
  • Vehicle tax: Counties tax motor vehicles. You pay your annual vehicle registration renewal fees and vehicle property taxes at the same time to the Division of Motor Vehicles under its Tag and Tax Together program. The Division of Motor Vehicles then gives the amount you paid in property taxes to your county.
  • Alcohol: North Carolina levies a 62-cents-per-gallon excise tax on beer and a $1-per-gallon excise tax on wine, in addition to sales tax. Liquor is only sold in state-run stores, and additional excise taxes are not charged. Excise taxes are paid by the vendor, but some or all may be included in the retail price.
  • Lottery: North Carolina taxes all lottery winnings at the state’s 4.25 percent income tax rate for tax year 2025.

Will I or my heirs have to pay inheritance and estate tax in North Carolina?

No, there is no inheritance or estate tax in North Carolina.

Are there any tax breaks for older North Carolina residents?

North Carolina offers three property tax break programs, but only one at a time can be used.

  • Homestead property tax exemption: If you are 65 or older and have a disability, you may be eligible for a homestead property tax exemption. To qualify, your 2023 income must have been $36,700 or less and you must own and occupy your home. The state excludes either $25,000 or 50 percent of the appraised value of the home, whichever is greater, from property taxes. The application for the exemption is due Saturday, June 1.
  • Circuit breaker program: North Carolina allows qualified older citizens to limit some property taxes through its Circuit Breaker Tax Deferment Program for property tax relief. Check the program application for income eligibility levels and tax rates. The annual application for the program is due Saturday, June 1. 

    The program allows taxes to be limited to a percentage of a qualifying homeowner’s income. If your income did not exceed $36,700 in the 2023 tax year, your taxes will be limited to 4 percent of your income. If your income is more than $36,700 but less than $55,050, your taxes will be limited to 5 percent of your income.

    The difference between the taxes that are due through this program and those that would have been due without the program is deferred until a later date and is a lien on the property. The last three years of deferred taxes are payable with interest if the owner dies, the property is transferred or the property is not used as the owner’s permanent residence.
  • Veterans: Honorably discharged veterans who have a disability or their never-remarried surviving spouse may be eligible for a property tax reduction. North Carolina excludes $45,000 of the appraised value of a permanent residence of the qualifying veteran or spouse. There is no age or income limit for this program, and the application is due Saturday, June 1.

Are military benefits taxed in North Carolina?

If you are a retired member of the military who served at least 20 years, or who retired because of a disability, you can deduct your military retirement pay. Check the North Carolina Department of Revenue website for more details.

A service member’s spouse may be eligible for deductions.

What is the deadline for filing North Carolina taxes in 2025?

The deadline to file a state tax return for North Carolina is April 15. However, the deadline for North Carolina residents to file a federal tax return is May 1, 2025. For help estimating your annual income taxes, use AARP’s Tax Calculator.

The personal income tax extension filing deadline is Oct. 15, although taxes owed are still due by April 15. If you receive an automatic extension to file a federal income tax return, you will get an automatic extension to file a North Carolina income tax return.

If you did not receive an automatic extension to file your North Carolina return, you can request an extension by completing this form. Learn more about extensions here.

Maura Kelly Lannan is a writer, editor and producer for AARP who covers federal and state policy. She has worked as a reporter for the Associated Press, the Chicago Tribune and the Waterbury, Connecticut, Republican-American. She also has written for Bloomberg Government, The Boston Globe and other publications.

Writer Elissa Chudwin contributed to this story.

Also of Interest: 

This story is provided by AARP North Carolina. Visit the AARP North Carolina page for more news, events, and programs affecting retirement, health care, and more.

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