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 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% state levy. Localities can add as much as 2.75%, and the average combined rate is 6.9%, according to the Tax Foundation. Groceries are not taxed by the state, but a 2% local tax is levied.In January 2016, the state made a wide range of services, such as cable setup, clothing alterations and ammunition reloading, taxable. Income Tax Range North Carolina has a flat tax rate of 5.49%. 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 The median property tax on North Carolina's median home value of $155,000 is $1,324.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 $29,500 for the 2017 tax year. The program excludes the first $25,000 or 50% of the home's 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 $29,500 a year for the 2017 tax year. For those making between $29,501 and $44,250 for the 2017 tax year, property taxes are limited to 5% of their income. Inheritance and Estate Taxes There is no inheritance tax and no estate tax.