State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees. Go to Retiree Tax Map North Carolina Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line Mixed Tax Picture The Tar Heel State doesn't tax Social Security benefits, but tax breaks for other common types of retirement income are scarce (although government pensions are exempt under certain circumstances). That's certainly a big problem for many North Carolina retirees who dread high income taxes.But things do get better for seniors in the state. Sales taxes in the state are close to the national average. But, while the state doesn't tax groceries, localities do.Property taxes are on the low end, too. Plus, homeowners 65 and older can choose between two property-tax relief programs.There are no estate or inheritance taxes in North Carolina, either. Income Tax Range North Carolina has a flat rate of 5.25% of state taxable income. Taxation of Social Security Benefits Social Security benefits are not taxed by the state. Tax Breaks for Other Retirement Income Income from federal government, designated North Carolina state and local government, and military retirement plans is exempt if the retiree had five or more years of creditable service as of August 12, 1989. This exemption is known as the "Bailey exemption."Railroad Retirement benefits are also exempt. Sales Tax 4.75% state levy. Localities can add as much as 2.75%, and the average combined rate is 6.98%, according to the Tax Foundation.Groceries: Exempt from state tax, but 2% local tax may applyClothing: TaxableMotor Vehicles: Exempt from ordinary sales tax, but taxable under special 3% highway-use taxPrescription Drugs: Exempt Real Property Taxes 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 $31,500 for 2021 ($31,000 for 2020). The program excludes the first $25,000 or 50% of the home's appraised 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 $31,500 a year for 2021 ($31,000 for 2020). For those making between $31,501 and $47,250 for 2021 ($31,001 to $46,500 for 2020), property taxes are limited to 5% of their income. Taxes over the limitation amount are deferred and remain a lien on the property. Homeowners must choose between the programs. Annual Car Taxes and Fees An annual vehicle property tax based on the car's age and value is imposed. County and municipal/district tax rates apply. Estate and Inheritance Taxes No estate or inheritance tax.