State & Local Taxes
North Carolina State Income Tax: 2026 Flat Rate
The North Carolina state income tax is a flat 3.99% on taxable income for tax year 2026, down from 4.25% in 2025. Every resident pays the same rate regardless of income level. North Carolina replaced its graduated brackets with a single flat rate in 2014 and has stepped that rate down almost every year since, with further reductions scheduled if state revenue clears statutory targets.
What is the North Carolina income tax rate for 2026?
North Carolina applies a flat 3.99% rate to taxable income for tax year 2026. There are no brackets: a filer with $40,000 of NC taxable income and a filer with $400,000 both pay 3.99% on each dollar of taxable income. The rate is set by statute (G.S. 105-153.7) and confirmed by the North Carolina Department of Revenue (NCDOR).
The 3.99% figure completes the rate schedule enacted in 2021 and adjusted by Session Law 2023-134. The rate has fallen steadily from 5.25% in 2019.
| Tax year | Flat individual income tax rate |
|---|---|
| 2019 to 2021 | 5.25% |
| 2022 | 4.99% |
| 2023 | 4.75% |
| 2024 | 4.50% |
| 2025 | 4.25% |
| 2026 and after (current law floor) | 3.99% |
Are more North Carolina rate cuts scheduled after 2026?
Possibly. Under Session Law 2023-134, the rate can drop below 3.99% starting in 2027 if the state’s General Fund revenue exceeds set thresholds for the prior fiscal year. When a threshold is met, the rate falls by 0.50 percentage points, down to a statutory floor of 2.49%.
For fiscal year 2025-26, projected General Fund collections of roughly $34.8 billion exceed the $33.042 billion trigger, which would set a 3.49% rate effective January 1, 2027, if the forecast holds. Each subsequent cut depends on revenue continuing to clear its own annual trigger, so the path below 3.99% is conditional, not guaranteed. Filers should confirm the current year rate with NCDOR before filing.
The North Carolina standard deduction
North Carolina offers a standard deduction that reduces taxable income before the flat rate applies, and the amount depends on filing status. Unlike the federal deduction, the North Carolina amount is a fixed statutory figure and is not indexed to inflation, so it can stay flat for several years. The amounts below applied for 2025 and generally carry into 2026 unless the legislature changes them.
| Filing status | NC standard deduction |
|---|---|
| Single | $12,750 |
| Married filing jointly / surviving spouse | $25,500 |
| Head of household | $19,125 |
| Married filing separately | $12,750 (or $0 if spouse itemizes) |
Taxpayers may instead claim North Carolina itemized deductions, which are more limited than federal itemized deductions. The NC itemized total is capped in several categories, and the choice between standard and itemized is made separately from the federal return. Compare the two using the guidance in our standard vs itemized deduction explainer.
No personal exemption
North Carolina does not allow a personal or dependent exemption. When the state moved to a flat tax in 2014, it eliminated personal exemptions and raised the standard deduction to offset part of that change. Families reduce NC taxable income through the standard deduction (or itemized deductions) and, in some cases, a child deduction that phases out at higher income levels, rather than through per-person exemptions.
Because the state starts from federal adjusted gross income and then applies its own additions and subtractions, the federal personal exemption rules do not carry over to the North Carolina return.
Retirement income and the Bailey exclusion
Some retirement income escapes North Carolina tax entirely under the Bailey exclusion, which comes from the state Supreme Court decision in Bailey v. State of North Carolina. The exclusion covers certain government pension income for retirees who had vested service before a set 1989 date. Social Security benefits are separately exempt in North Carolina for all filers.
The Bailey exclusion may apply when a retiree had five or more years of creditable service as of August 12, 1989, in a qualifying plan, including:
- The NC Teachers’ and State Employees’ Retirement System
- The NC Local Governmental Employees’ Retirement System
- The NC Consolidated Judicial Retirement System
- The Federal Employees’ Retirement System (FERS) or the Civil Service Retirement System (CSRS)
- Certain federal military retirement plans
- The state’s 401(k) and 457 plans, if the retiree contributed or contracted to contribute before August 12, 1989
Retirees who did not meet the 1989 service requirement generally cannot use Bailey, and their pension income is often taxable at the 3.99% flat rate. North Carolina also exempts certain military retirement pay under a separate 2021 law, which can apply even when Bailey does not, depending on service history. Because eligibility turns on plan type and service dates, retirees should confirm their classification against the Form 1099-R they receive. See our Form 1099-R explainer for how retirement distributions are reported.
Who has to file a North Carolina return?
You generally file a North Carolina return if you are a resident, part-year resident, or nonresident with North Carolina taxable income above the filing threshold, which tracks the standard deduction for your filing status. Filing is done on Form D-400.
- Residents are individuals domiciled in North Carolina, or those who live in the state for other than a temporary or transitory purpose. Residents report all income, wherever earned.
- Part-year residents and nonresidents report North Carolina-source income and use Schedule PN to prorate the tax based on the share of income connected to the state.
- A credit for taxes paid to other states can reduce double taxation when a resident earns income taxed by another state.
Residency for tax purposes turns on domicile, not just where you spend time, so establishing or ending North Carolina residency can be fact-specific. For the broader distinction between state and federal systems, see state vs federal income tax.
How North Carolina compares
North Carolina’s single flat rate contrasts with the graduated brackets used by neighbors and large states. A flat system means the marginal and effective rates on taxable income are the same headline number, though deductions still make the effective rate on total income lower.
For reference points, see California state income tax, which runs a graduated schedule topping 13.3%, and states with no income tax, which levy 0% on wage income. North Carolina sits between those extremes as a low, single-rate state.
Frequently asked questions
What is the NC state income tax rate for 2026?
North Carolina applies a flat 3.99% individual income tax rate for tax year 2026, down from 4.25% in 2025. The rate is the same for every filer regardless of income, because North Carolina uses a single flat rate rather than graduated brackets. The rate is set in G.S. 105-153.7 and published by NCDOR.
Does North Carolina tax Social Security or retirement income?
North Carolina does not tax Social Security benefits for any filer. Other retirement income is generally taxable at 3.99%, unless it qualifies for the Bailey exclusion, which can fully exempt certain government and military pensions for retirees who had five or more years of creditable service as of August 12, 1989. Eligibility depends on the plan and service dates.
Does North Carolina have a personal exemption?
No. North Carolina eliminated personal and dependent exemptions when it adopted the flat tax in 2014. Filers reduce taxable income through the standard deduction or NC itemized deductions, and some families may claim a child deduction that phases out at higher incomes. The federal personal exemption rules do not carry over to the state return.
What is the North Carolina standard deduction for 2026?
The standard deduction was $12,750 for single filers and $25,500 for married filing jointly in 2025, with $19,125 for head of household. These fixed statutory amounts are not indexed to inflation and generally carry into 2026 unless the legislature changes them. Confirm the current figures with NCDOR before filing.
Will North Carolina income tax keep going down?
It may. Session Law 2023-134 allows the rate to drop by 0.50 points starting in 2027, down to a floor of 2.49%, but only if General Fund revenue clears annual thresholds. Current projections point to a 3.49% rate in 2027, though each future cut depends on revenue targets being met, so lower rates are scheduled but not guaranteed.
Who has to file a North Carolina tax return?
Residents, part-year residents, and nonresidents with North Carolina taxable income above the filing threshold generally must file Form D-400. The threshold tracks the standard deduction for your filing status. Part-year residents and nonresidents use Schedule PN to prorate tax based on North Carolina-source income, and residents may claim a credit for taxes paid to other states.
Reviewed by The Ledgerism Editorial Team. Last reviewed: July 2026.