North Carolina retirement taxes at a glance (2026)
| State income tax | Flat 3.99%North Carolina has a flat 3.99% income tax for 2026, down from 4.25% in 2025. |
|---|---|
| Social Security | Not taxedSocial Security benefits are fully deductible from North Carolina income. |
| Pensions | TaxedPrivate pensions are taxed at the flat rate. North Carolina has no general pension exclusion. |
| 401(k) and IRA withdrawals | TaxedIRA and 401(k) withdrawals are taxed at the flat rate. |
| Government pensions | Partly taxedState, local, and federal government pensions are exempt for retirees covered by the Bailey settlement. Other government pensions are taxed. |
| Military retirement pay | Partly taxedMilitary retirement pay is fully deductible for retirees with at least 20 years of service or who were medically retired. Others are taxed. |
| Estate tax | No |
| Inheritance tax | No |
| Property tax help for seniors | Homeowners 65+ with income up to $37,900 can exclude the greater of $25,000 or 50% of home value. A circuit breaker limits taxes to 4% or 5% of income for incomes up to $56,850. |
| Sales tax | State sales tax is 4.75% plus local tax of 2% to 2.75%. |
Recent changes and good to know
- The flat rate fell to 3.99% on January 1, 2026, completing the scheduled phasedown (4.5% in 2024, 4.25% in 2025).
- The Bailey exemption applies to certain government retirees who were vested before August 1989; check NCDOR for exact eligibility.
How to lower your retirement taxes in North Carolina
- Mix your income sources. Roth IRA withdrawals are tax-free at the federal level and generally in North Carolina too, so a Roth conversion before retirement can cut state tax later. Try the Roth conversion calculator.
- Watch federal Medicare costs. Large IRA withdrawals can raise your Medicare premiums. Check the 2026 IRMAA brackets.
- Think about your heirs. See what your IRA will really cost your family with the Family Tax Rate calculator.
- Comparing states? These have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming.
Frequently asked questions
Does North Carolina tax retirement income?
Partly. North Carolina does not tax Social Security or most long-service military pensions, but taxes most other pensions and IRA/401(k) withdrawals at 3.99%.
Does North Carolina tax Social Security?
Social Security benefits are fully deductible from North Carolina income.
Does North Carolina tax pensions?
Private pensions are taxed at the flat rate. North Carolina has no general pension exclusion.
Does North Carolina tax 401(k) and IRA withdrawals?
IRA and 401(k) withdrawals are taxed at the flat rate.
Does North Carolina tax military retirement pay?
Military retirement pay is fully deductible for retirees with at least 20 years of service or who were medically retired. Others are taxed.
Sources (last verified 2026)
- G.S. 105-153.5 Modifications to adjusted gross income — North Carolina General Assembly (2026-09-24)
- North Carolina State Taxes: 2026 Tax Season Facts — AARP (2026-03-18)
- State Individual Income Tax Rates and Brackets, 2026 — Tax Foundation (2026-02-17)
Educational content only, not tax, legal or investment advice. Plans and tax laws change; confirm details with your employer's plan documents or your state revenue department. Smart Financial Lifestyle is not affiliated with any employer named on this site.