How Much Does North Carolina Take Out for Taxes?

North Carolina, like all states, funds its public services through a system of state and local taxation. The total amount an individual contributes depends on various factors, including income, spending habits, and property ownership. Understanding the different taxes levied in the state provides clarity on how these financial obligations are determined for residents.

Individual Income Tax

North Carolina assesses an individual income tax on residents and non-residents earning income within its borders. For the 2024 tax year, the state applies a flat income tax rate of 4.50% to taxable income. This rate is set to decrease further in future years, reaching 4.25% in 2025 and 3.99% in 2026 and thereafter.

Taxable income in North Carolina begins with federal adjusted gross income (AGI). This starting point is then modified by various state-specific additions or subtractions. Wages, salaries, business income, and certain retirement income generally contribute to an individual’s taxable income.

Taxpayers can reduce their taxable income by claiming either a standard deduction or, alternatively, itemized deductions. For 2024, the standard deduction amounts vary by filing status: $12,750 for single filers, $19,125 for heads of household, $25,500 for married filing jointly, and $12,750 for married filing separately. Unlike federal taxes, North Carolina does not offer personal exemptions for taxpayers or dependents.

Individuals who itemize deductions in North Carolina may claim charitable contributions, mortgage interest, and property taxes. The deduction for mortgage interest and property taxes is capped at $20,000. The state also provides certain tax credits that directly reduce the tax owed, rather than just taxable income. A Child Tax Credit is available to eligible taxpayers, providing further relief. A credit may also be claimed for income taxes paid to another state or country on income also taxed by North Carolina.

For most employees, North Carolina income tax is withheld from paychecks throughout the year. Employers are required to withhold state income tax from the wages of North Carolina residents, regardless of where the income is earned, and for non-residents earning income from services performed within the state. Employees typically complete Form NC-4 or NC-4EZ to specify their withholding allowances. This withholding process ensures that tax obligations are met consistently over the year.

Sales and Use Tax

North Carolina levies a sales and use tax on the purchase of tangible personal property and certain services. The statewide sales tax rate is 4.75%. This state rate is applied to the sales price of taxable goods and services at the point of sale.

Local jurisdictions, such as counties, can impose additional sales tax rates on top of the state rate. These local rates typically range from 2% to 2.75%, meaning the combined state and local sales tax rate can vary across the state, generally falling between 6.75% and 7.50%. This combined rate is what consumers ultimately pay when making purchases.

While many goods and services are subject to sales tax, certain items are exempt. Exemptions include most non-prepared food items and goods purchased for resale by a business. Manufacturing machinery, equipment, and raw materials used directly in manufacturing processes are also exempt from sales and use tax.

The use tax applies when taxable items are purchased outside North Carolina but are intended for storage, use, or consumption within the state, and sales tax was not collected at the time of purchase. The use tax rate is equivalent to the combined state and local sales tax rate applicable in the county where the item is used or consumed. This ensures fairness and prevents individuals from avoiding sales tax by purchasing goods out-of-state.

Property Tax

Property taxes in North Carolina are levied and collected at the local level by counties and municipalities, rather than by the state government. These taxes are a significant source of revenue for local services, including public schools, law enforcement, and local infrastructure. Property tax assessments are based on the appraised value of both real property, such as land and buildings, and certain types of personal property, like vehicles and business equipment.

Local governments establish their own tax rates, often expressed as a millage rate, which is a specific amount of tax per $1,000 of assessed property value. The amount of property tax owed is calculated by multiplying the assessed value of the property by the applicable local tax rate. For instance, a property assessed at $100,000 in an area with a 0.73% effective property tax rate would owe $730 in property taxes.

Counties periodically conduct revaluations to update property assessed values to reflect current market conditions. This process helps ensure that property values are equitable and up-to-date for tax purposes. For homeowners, property taxes are often paid annually, and for vehicles, the property tax is paid at the same time as the vehicle’s registration renewal fee through the “Tag & Tax Together” program.

Other State and Local Taxes

Beyond individual income, sales, and property taxes, North Carolina collects several other state and local taxes that contribute to the overall tax structure. These taxes often target specific goods, services, or particular activities.

Motor vehicle taxes are a component of the state’s tax system. When a vehicle title is transferred in North Carolina, a Highway Use Tax (HUT) is imposed at a rate of 3% of the vehicle’s net retail purchase price, serving in place of a general sales tax on vehicles. Vehicle owners also pay an annual personal property tax on their vehicles to the county in which they reside.

Excise taxes are levied on particular goods or services. North Carolina imposes excise taxes on products like gasoline, which is taxed at 40.65 cents per gallon, tobacco products, and alcoholic beverages. For real estate transactions, a conveyance tax, also known as an excise tax, is collected at the rate of $1 for every $500 of the property’s value when ownership is transferred.