Bottom Line
Middle-Class Families: Mixed Tax Picture (Go to the Kiplinger Tax Map for Middle-Class Families)
Retirees: Mixed Tax Picture (Go to the Kiplinger Tax Map for Retirees)
With a flat 5.25% rate for the 2021 tax year, a lot of taxpayers in the Tar Heel State pay income taxes at a higher-than-average rate (but rates are going down starting in 2022).
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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, there are no estate or inheritance taxes in North Carolina, either. When you add it all up, North Carolina's overall tax burden is generally in the middle when compared to other states.
North Carolina Income Taxes
North Carolina Income Tax Range
For 2021, North Carolina has a flat rate of 5.25% of state taxable income. However, the rate is decreased to 4.99% for 2022, 4.75% for 2023, 4.6% for 2024, 4.5% for 2025, 4.25% for 2026, and 3.99% for 2027 and thereafter.
North Carolina Taxation of Social Security Benefits
Social Security benefits are not taxed by the state.
North Carolina Tax Breaks for Other Retirement Income
Income from federal government retirement plans, or designated North Carolina state and local government 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."
Military pensions are exempt if the retired veteran (1) served at least 20 years, or (2) is medically retired. This exemption doesn't apply to severance pay received due to separation from the U.S. armed forces.
Railroad Retirement benefits are also exempt.
North Carolina 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 apply
- Clothing: Taxable
- Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 3% highway-use tax
- Prescription Drugs: Exempt
North Carolina Real Property Taxes
In North Carolina, the median property tax rate is $818 per $100,000 of assessed home value.
North Carolina Property Tax Breaks for Retirees
To qualify for the 2022 Elderly or Disabled Exclusion, a homeowner must be at least 65 years old or totally and permanently disabled, with income of no more than $31,900 in 2021. The program excludes the first $25,000 or 50% of the home's appraised value, whichever is greater, from taxation.
The 2022 Circuit Breaker Tax Deferment Program limits property taxes to 4% of an owner's income for those 65 years and older who made less than $31,900 in 2021. For those making between $31,901 and $47,850 in 2021, 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.
North Carolina Motor Fuel Taxes
Gasoline: 38.75¢ per gallon.
Diesel: 38.75¢ per gallon.
North Carolina Sin Taxes
Cigarettes: $0.45 per pack
Other tobacco products: 12.8% of the wholesale price (no more than $0.30 per cigar)
Vapor products: $0.05 per ml
Beer: $0.62 per gallon
Wine: $1 per gallon
Liquor: $14.58 per gallon (the liquor tax is an estimate by the Distilled Spirits Council of the United States and published by the Tax Foundation)
North Carolina Estate and Inheritance Taxes
No estate or inheritance tax.
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