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Tool | August 2013

State-by-State Guide to Taxes on Retirees

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North Carolina

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The Bottom Line
Map of North Carolina

MIXED TAX PICTURE

The Tar Heel State is a favorite destination for retirees. Social Security benefits are exempt from state income taxes. There are currently tax breaks for public pensions and qualified private pensions, though those breaks disappear next year. Real estate is assessed at 100% of appraised value. Homeowners 65 and older may qualify for a homestead exemption of up to $25,000 or 50% of the permanent residence's appraised value, whichever is greater. Recently signed legislation replaces the graduated income tax brackets with a flat tax, subjects more services to the sales tax and eliminates the estate tax.

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

Low: 6% (on up to $12,750 of taxable income for single filers and up to $21,250 for married couples filing jointly)

High: 7.75% (on taxable income over $60,000 for single filers and over $100,000 for married couples filing jointly)

Note: The graduated income tax rates will be replaced with a flat tax of 5.8% for 2014 and 5.75% for 2015 and beyond.

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

North Carolina offers a break of at least $4,000 in exclusions for pensions from federal, state and local governments (depending on dates and length of service). It also offers an exemption of up to $2,000 for qualified private pensions, including IRAs. Out-of-state government pensions also qualify for the $4,000 exemption. But note: These two tax breaks have been eliminated starting in 2014.

(A tax break known as the “Bailey exemption” remains; 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.)

Property Taxes

Residential property is assessed based on 100% of the appraised value. Taxes are collected by cities and counties. Median property tax on the state's median home value of $155,500 is $1,209, 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 $27,100 for the previous tax year. The program excludes the first $25,000 or 50% of the assessed value (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 $27,100 a year. For those making between $27,100 and $40,650, property taxes are limited to 5% of their income.

Inheritance and
Estate Taxes

There is no inheritance tax and no estate tax.

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