Our comprehensive guide to taxes on retirement income, property and purchases, as well as special tax breaks for seniors, in every state. Go to Retiree Tax Map North Carolina View State Compare List (0) selected | Compare up to 5 The Bottom Line Mixed Tax Picture The Tar Heel State is a favorite destination for retirees. Social Security benefits are exempt from state income taxes. But as part of tax legislation enacted in 2013, other retirement-income breaks were eliminated as of 2014 although standard deduction amounts have been increased. The state has switched from graduated income tax brackets to a flat tax. Other tax changes subject more services to the sales tax and eliminates the estate tax. Homeowners 65 and older may qualify for an Elderly or Disabled Exclusion. State Sales Tax 4.75%. Prescription drugs and medical equipment are exempt. Food is subject to a 2% county tax. Localities may add up to 2.75% tax. Income Tax Range North Carolina recently replaced their graduated tax system with a flat tax of 5.75%. Social Security Benefits are not taxed. Exemptions for Other Retirement Income Because of legislation enacted in 2013, previous tax breaks for pensions for both government and private employees have been eliminated starting in 2014. However, standard deduction amounts have increased to $15,000 for married filing jointly, $12,000 for head of household, and $7,500 for single/married filing separate.A tax break known as the "Bailey exemption" remains despite the elimination of previous tax breaks; this tax break exempts from taxation certain retirement benefits received by a state or federal government retiree, if the retiree had five or more years of creditable service as of August 12, 1989. Railroad Retirement income is not taxed.IRAsTaxable at the flat tax rate.401(k)s and Other Defined-Contribution Employer Retirement PlansTaxable at the flat tax rate.Private PensionsTaxable at the flat tax rate.Public PensionsTaxable at the flat tax rate. Property Taxes Median property tax on North Carolina's median home value of $154,300 is $1,304, according to the Tax Foundation.Tax breaks for seniors: To qualify for the Elderly or Disabled Exclusion, a homeowner must be at least 65 years old or totally and permanently disabled, with income of no more than $29,000 for 2015. The program excludes the first $25,000 or 50% of the home's appraised value plus the value of up to 1.0 acre of land, whichever is greater, from taxation. The state's Circuit Breaker Tax Deferment Program limits property taxes to 4% of an owner's income for those 65 years and older who make less than $29,000 a year for 2015. For those making between $29,001 and $43,500 for 2015, property taxes are limited to 5% of their income. Inheritance andEstate Taxes There is no inheritance tax and no estate tax.