North Carolina Retirement Taxes: Income, Property, Sales and Estate

Summary

North Carolina's tax system for retirees has a few simple features and a few that depend on where you live. The state income tax is a single flat rate, Social Security is not taxed, and there is no state estate or inheritance tax. Property tax, by contrast, is set by counties and municipalities, and the relief offered to older homeowners is limited by income. This guide states each rule, the tax year it applies to, and where the tradeoffs sit.

Figures below come from North Carolina Department of Revenue, General Assembly, Office of State Budget and Management and county pages as of September 30, 2026, and each is tied to the tax year or date its source states. Rates and thresholds are adjusted regularly, so confirm the current-year figure with the Department of Revenue or your county tax office before acting. This page is general information and not tax advice. For a side-by-side view with the neighboring state, see NC vs SC taxes for retirees, and for the site's overview of the state, see North Carolina.

Key takeaways

• North Carolina's individual income tax is flat: 4.50 percent for tax year 2024, 4.25 percent for 2025 and 3.99 percent for taxable years after 2025, with a revenue-triggered drop to 3.49 percent projected by the state budget office for tax year 2027.
• Social Security is not taxed by North Carolina; most other retirement income is, unless it qualifies under the Bailey exclusion for government retirees with five or more years of creditable service as of August 12, 1989. The state standard deduction for tax year 2025 is $12,750 single and $25,500 married filing jointly, with no extra amount for age 65.
• Property tax is set by counties and municipalities, and each county must reappraise on at most an eight-year cycle.
• The Elderly or Disabled Homestead Exclusion removes the greater of $25,000 or 50 percent of appraised value for residents 65 and older with income at or below $38,800 for the 2026 tax year, and applications are accepted through June 1.
• County sales tax totals run from 6.75 to 8.25 percent, with Mecklenburg at 8.25 percent after a 1 percent increase effective July 1, 2026; qualifying food carries a 2 percent local rate; there is no state estate or inheritance tax.

The North Carolina individual income tax

North Carolina taxes individual income at one flat rate on taxable income. The Department of Revenue's rate schedules page states 4.50 percent for tax year 2024, 4.25 percent for taxable years beginning in 2025, and 3.99 percent for taxable years after 2025, under Session Law 2023-134. In practice that means 3.99 percent applies to tax year 2026 income, which is reported on the return filed in early 2027. The same page adds that additional rate changes may apply beginning with tax year 2027 based on rate reduction triggers.

The state budget office describes how those triggers are expected to play out. Its page states that the consensus revenue forecast issued on May 15, 2026 projects General Fund net tax collections above the income tax cut triggers in fiscal years 2025-26 and 2026-27, which means the individual rate would fall by statute from 3.99 percent to 3.49 percent beginning in tax year 2027 and from 3.49 percent to 2.99 percent in 2028. Its long-run projections show a further cut to 2.49 percent in 2034. The same page also describes a different, more gradual schedule announced by General Assembly leadership on May 12, 2026 (3.49 percent for 2027 to 2029, 3.24 percent for 2030 to 2032, then 2.99 percent), which it presents as a proposal. Because the path depends on forecasts and on legislative action, treat anything after 3.99 percent as a planning assumption and not a promise.

A flat rate is simple to model: state income tax equals the rate times North Carolina taxable income, after the state's deductions and subtractions. Because the rate is the same at every level, retirees with larger taxable withdrawals do not move into a higher state bracket, though they may still move into higher federal brackets.

Social Security

North Carolina does not tax Social Security benefits. The Department of Revenue's Social Security and Railroad Retirement Benefits page explains that if benefits were taxed on your federal return, you may deduct them on the North Carolina return, because the income is already part of federal adjusted gross income and North Carolina does not tax it. The deduction is entered on Form D-400 Schedule S, and benefits that are not included in federal adjusted gross income cannot be deducted. The figures on that page are stated for tax year 2025.

The practical effect for a retiree whose income is mostly Social Security is a small or zero state income tax bill. For retirees who also take pension, IRA or investment income, the Social Security exemption lowers the taxed base but does not eliminate the tax on the rest.

Pensions, IRAs and the Bailey exemption

Outside Social Security, most retirement income starts from federal adjusted gross income and is taxed at the flat rate unless a specific North Carolina deduction applies. The Department of Revenue's standard deduction page, which states its figures for tax year 2025, lists a North Carolina standard deduction of $12,750 for single filers, $25,500 for married filing jointly or qualifying surviving spouse, $19,125 for head of household, and $12,750 for married filing separately when the spouse does not claim itemized deductions. The page states that there is no additional North Carolina standard deduction for taxpayers age 65 or older or blind. Amounts are adjusted periodically, so confirm the standard deduction for the tax year you are filing.

The important exception for government retirees is the Bailey settlement. The Department of Revenue's Bailey Decision page, which applies to tax year 2025 unless noted, states that as a result of Bailey v. State of North Carolina, North Carolina may not tax certain retirement benefits received by retirees of the state and its local governments or by United States government retirees, including military. It lists the North Carolina Teachers' and State Employees' Retirement System, the Local Governmental Employees' Retirement System, the Consolidated Judicial Retirement System, the Federal Employees' Retirement System and the Civil Service Retirement System, and requires that the retiree had five or more years of creditable service as of August 12, 1989. Benefits from the state's 401(k) and 457 plans qualify if the retiree had contributed or contracted to contribute before that date. The exclusion does not apply to benefits paid to former teachers and state employees of other states and their political subdivisions.

The date matters. Distributions from a qualifying Bailey retirement account in which the retiree was vested as of August 12, 1989 are exempt regardless of the source of the funds in the account, but Bailey benefits rolled over into another plan lose their character unless that plan is itself a qualifying Bailey account. A government employee who did not have the required service by that date does not qualify, so newer government retirees may owe North Carolina tax on their pensions. A qualifying retiree claims the deduction on Form D-400 Schedule S and must still file a return if the minimum gross income filing requirements are met. Confirm the vesting date with the retirement system before relying on the exclusion.

Separately, for taxable years beginning on or after January 1, 2022, the Department of Revenue's military retirement page allows a deduction for United States government retirement pay for uniformed service to a retired member who served at least 20 years or was medically retired, and for certain survivor plan payments, to the extent the payments are included in federal adjusted gross income. Amounts deducted under that provision cannot also be deducted under Bailey.

How property tax works

Property tax rates are set locally. Mecklenburg County's revaluation page states that the county commissioners, the Charlotte City Council and town boards determine tax rates for their communities, so the combined rate depends on the exact address. Rates are stated per $100 of assessed value. As one example, Wake County's press release on its adopted budget for fiscal year 2026, which ran from July 1, 2025 to June 30, 2026, sets the county tax rate at 51.71 cents per $100 of valuation, before any municipal rate. A new fiscal year began on July 1, 2026 and county rates can change with each budget, so check the current rate with the county. The Department of Revenue publishes a fiscal year 2026-2027 county property tax rate and reappraisal schedule as a spreadsheet.

Values are set through revaluation. Under G.S. 105-286, each county must reappraise all real property on an eight-year cycle, and a county may advance its reappraisal and adopt a more frequent cycle by resolution. Counties of 75,000 or more people must reappraise earlier if the county's sales assessment ratio falls below 0.85 or above 1.15. Mecklenburg County's revaluation page states that beginning in 2019 the county revalues every four years, that the next revaluation takes place in 2027, and that after a revaluation tax rates are adjusted to keep the process revenue-neutral unless elected officials choose otherwise. Individual bills still change with each property's value relative to the rest of the county.

Because assessed value can lag market value in counties on a longer cycle, comparing counties using last year's tax bill on a listing can mislead. A better method is to ask the county tax office for the current rate and the date of the next revaluation and to estimate the bill from the price you would pay.

The Elderly or Disabled Homestead Exclusion

The main age-based property tax relief is the homestead exclusion in G.S. 105-277.1. The statute excludes from taxation the greater of $25,000 or 50 percent of the appraised value of a permanent residence owned and occupied by a qualifying owner. A qualifying owner must, as of January 1 preceding the tax year, be at least 65 or totally and permanently disabled, have income for the preceding calendar year at or below the income eligibility limit, and be a North Carolina resident. The limit was set at $25,000 for the year beginning July 1, 2008 and is adjusted each year by the Social Security cost-of-living percentage; the Department of Revenue notifies counties each year. The Department of Revenue's 2026 application, Form AV-9, states that the limit for the 2026 tax year is $38,800, and Wake County's tax year 2026 application states the same figure for 2025 income of the applicant and spouse. A different county page may show a different figure for a different year, so the number on your own county's current-year application controls.

The statute defines income as all moneys received from every source other than gifts or inheritances from a spouse, lineal ancestor or lineal descendant, and for married applicants living together it counts both spouses. A residence owned and occupied by a married couple gets the full benefit even if only one spouse meets the age requirement. The permanent residence includes the dwelling and the dwelling site up to one acre. The application should be filed during the regular listing period but must be accepted through June 1 preceding the tax year; Wake County's form adds that late applications may be considered for good cause through December 31 of the tax year. Because the exclusion is the greater of a flat amount or half the value, the 50 percent test is the larger figure for homes appraised above $50,000.

The tradeoffs are the income test and the rule that an owner who receives this exclusion may not receive other property tax relief under the statute. A retiree with income above the limit receives nothing from this program, which means the benefit is targeted at lower-income households and is not a broad age discount. The AV-9 form also describes a separate Disabled Veteran Exclusion under G.S. 105-277.1C of up to the first $45,000 of appraised value, with no age or income limit, for veterans who meet the form's definition.

Circuit Breaker deferral and other relief

A second program, the Property Tax Homestead Circuit Breaker in G.S. 105-277.1B, defers rather than excludes tax. The statute requires that the owner have income no more than 150 percent of the same income eligibility limit, have owned the property as a permanent residence for at least five consecutive years and occupied it for at least five years, be at least 65 or totally and permanently disabled, and be a North Carolina resident. The Department of Revenue's 2026 application states that for the 2026 tax year, an owner with income at or below $38,800 has taxes limited to 4 percent of income, and an owner with income above that but at or below 150 percent of the limit, $58,200, has taxes limited to 5 percent of income. Wake County's application shows the same two thresholds.

Taxes above the limit are deferred and remain a lien on the property. The statute and the Department of Revenue's application state that the last three years of deferred taxes before a disqualifying event, plus interest, become due when the owner transfers the residence, dies (unless the share passes to a co-owner or spouse who continues to occupy it), or stops using it as a permanent residence. The application states that interest accrues as if the taxes had been payable on their original due dates; ask the county tax office for the interest rate and current terms. Buncombe County's page adds that the owner must apply for the deferral each year and before June 1.

Deferral is credit against your home equity, not forgiveness, so it can reduce what heirs receive. The Department of Revenue's application also states that each owner may receive benefit from only one of the three programs (the elderly or disabled exclusion, the disabled veteran exclusion, or the circuit breaker), and that the circuit breaker cannot be combined with either exclusion.

Vehicle property tax

North Carolina taxes registered motor vehicles as property. The Department of Revenue's Tag & Tax Together page states that a law moved vehicle tax collection from the 100 counties to the Division of Motor Vehicles, that beginning in mid-2013 DMV sends a renewal notice combining the vehicle property tax with the registration fee, and that the total is payable to NCDMV online, by mail or in person. Owners receive the notice about 60 days before the registration expires, provided the address on file with DMV is current.

The page points to a DMV vehicle property tax estimator for calculating the tax. A retiree who moves should update the address with DMV so the notice reaches them.

Sales and use tax

The Department of Revenue's current sales and use tax rate page lists total rates by county, made up of the 4.75 percent state rate plus applicable local and transit rates. As of September 30, 2026, county totals range from 6.75 percent in counties such as Brunswick and Henderson to 7 percent in Buncombe, Moore and New Hanover, 7.25 percent in Wake, 7.5 percent in Durham and Orange, and 8.25 percent in Mecklenburg. The Wake, Durham, Orange and Mecklenburg totals include the 0.50 percent transit rate. The page states that effective July 1, 2026 Mecklenburg County levied an additional 1 percent local rate, and its banner announces the increase; the page notes that the rates do not include prepared meal taxes imposed by local jurisdictions.

Qualifying food for home consumption is treated differently. The Department of Revenue's food page states that a 2 percent local rate applies to qualifying food, and the state, transit and other local rates do not apply. Candy, soft drinks, prepared food, dietary supplements, food sold through a vending machine and prepaid meal plans are not qualifying food and are taxed at the general state and applicable local and transit rates. For a retiree, the practical point is that groceries are lightly taxed while restaurant meals and most other purchases carry the full county rate.

Estate and inheritance tax

The Department of Revenue's estate and inheritance tax collections table states that the North Carolina inheritance tax was repealed effective January 1, 1999, applying to estates of decedents dying on or after that date, and that Session Law 2013-316 repeals the North Carolina estate tax effective January 1, 2013, applying to the estates of decedents dying on or after that date. The estate tax that had remained after 1999 was equal to the state death tax credit for federal purposes. A federal estate tax can still apply to large estates under federal law; check the IRS for the current federal exemption. A retiree who owns property in another state should check that state's rules, since some states tax estates or inheritances that North Carolina does not.

Putting it together

For a household living mainly on Social Security and a modest pension, North Carolina's income tax burden is small and the flat rate is scheduled to fall. For a household with substantial IRA withdrawals and a pension that does not qualify under Bailey, the flat rate applies to nearly all of it after the standard deduction. Homeownership costs turn mostly on the county's rate and reappraisal cycle, and the age-based exclusion helps only lower-income households. Sales tax differs by county, and Mecklenburg's combined rate rose to 8.25 percent on July 1, 2026. For a comparison with South Carolina, whose retirement deduction and homestead rules differ, read NC vs SC taxes for retirees. Retirees weighing coastal locations should also read coastal hurricane and flood insurance in the Carolinas, because insurance can outweigh tax differences.

Related guides

• North Carolina vs. South Carolina Taxes for Retirees: A Side-by-Side Comparison
• South Carolina Retirement Taxes: Income, Property, Vehicle and Sales Tax
• Property Tax Relief for Seniors: North Carolina vs South Carolina