Tax in North Carolina: a complete guide
Like every state in the US, North Carolina has its own unique set of tax rules and regulations. This guide is here to help you decide whether the mix of tax pros and cons in the state suits your circumstances and your future plans.
At first glance, North Carolina doesn’t appear to be the most tax-friendly state in the US. For example, Florida will offer you more deductions and Delaware has no state or local sales tax. But this is far from the whole story – the overall cost of living is lower than the national average for a start. So, your hard-earned dollars go further.
North Carolina income tax
As a taxpaying US citizen, federal tax laws apply to you regardless of your home state.
So, what about the state-specific rules in North Carolina?
Since 2022, all taxpayers have been charged a flat rate of 4.99 percent, but this is scheduled to drop over the next few years until it reaches 3.99 percent in 2027. This applies to all taxable income – so that’s income minus qualifying deductions and exemptions and any contribution to your retirement plan like an IRA.
You can claim itemized deductions for charitable contributions, mortgage interest and property taxes, but these cannot exceed a total combined sum of $20,000 in the latter two categories.
If you don’t have itemized deductions, you can claim North Carolina’s standard deduction, which from 2022 has been $12,750 for single filers and $22,500 for joint filers.
North Carolina sales tax
The basic sales tax rate in North Carolina is 4.75 percent, but each county within the state collects its own separate sales tax. These range from two percent to 2.25 percent. It’s worth noting that in Durham and Orange counties, another additional tax of 0.5 percent is used to fund the Research Triangle Regional Public Transportation Authority. Overall, sales taxes in North Carolina range from 6.75 percent to 7.50 percent – quite a high figure by national standards.
Here’s a selection of the sales tax rates across some of North Carolina’s counties:
|Total sales tax
Below are the sales tax rates on alcohol and tobacco products, which help to build the overall picture:
North Carolina cigarette tax is $0.45 per pack of 20.
North Carolina tax on other tobacco products is 12.8 percent of the wholesale price.
North Carolina tax on vapor products is 0.05 percent per ml.
North Carolina beer tax is 0.62 percent per gallon.
North Carolina wine tax is $1 per gallon.
North Carolina liquor tax is $12.30 per gallon.
North Carolina property tax
The state’s property tax rate is below the national average at 0.70 percent. The typical homeowner in North Carolina pays around $1,668 annually in property taxes, or a little over $140 per month.
One thing to watch out for is that rates tend to be higher in the largest cities, so in Mecklenburg County, for example, the property tax rate is 1.03 percent because the county contains the city of Charlotte.
If you’re planning to retire to North Carolina, there are property tax breaks that will be of interest. The state offers a homestead property tax exemption for eligible residents, where a proportion of the appraised value of your permanent home is excluded from taxation. You need to be the occupier and over 65 to benefit.
North Carolina motor tax
According to CarsDirect, you’ll pay a three percent sales tax on the purchase of a vehicle in North Carolina. This is known as the Highway Use Tax and is designed to fund the improvement and maintenance of state roads. Always consider other possible charges, such as registration, title and license plate fees. Here’s what they are in North Carolina:
Title fee – $40
Registration fee – $28 to $59.75
Plate Transfer fee – $15
Fueling your car is a big part of owning it, of course, so here are the motor fuel tax rates:
Gasoline is taxed at 40 cents per gallon
Diesel is taxed at 40.75 cents per gallon
North Carolina estate tax
Like many of us, you may be expecting to receive an inheritance from a loved one or planning to leave one behind for your loved ones. If so, you’ll probably want to know the tax position in your home state.
In North Carolina, the state imposes no inheritance or estate tax.
As of 2023, only six US states require their residents to pay any state-level inheritance tax, and just 12 states impose estate taxes.
North Carolina retirement tax
As mentioned, North Carolina is not the most tax-friendly state in the Union, with several neighbors offering more deductions and incentives. Social Security income is not taxed, but withdrawals from retirement accounts are, along with pension incomes.
However, tax is not the only financial factor to weigh up. You’ve got to look at the cost of living in general, and here North Carolina begins to look more enticing. It’s five percent lower than the national average, and housing is 14 percent lower. Basics, such as groceries and clothing, are a little lower at one percent below the national average. Big cities tend to buck this trend and can be more expensive.
For further tax guidance and to ensure you’re not paying more tax than you need to, it’s wise to speak to an expert. A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.