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    North Carolina Tax Guide 2026

    TaxKiln Editorial · Last reviewed:

    North Carolina has a flat 4.25% personal income tax in 2026, en route to 3.99% by 2027 under SB 105 (2021). Corporate tax is 2.25% in 2026, phasing down to zero by 2030 — North Carolina is on track to be the first state to eliminate corporate income tax. Standard deduction $12,750 single / $25,500 MFJ. Sales tax 4.75% state + ~2.25% local (combined typically 7%). No local income tax. PTET available at 4.5%.

    Flat-rate phase-down (SB 105)

    Senate Bill 105 of 2021 established the path: 5.25% (2021) → 4.99% (2022) → 4.75% (2023) → 4.5% (2024) → 4.25% (2026) → 3.99% (2027). Phase-down is statutory, not contingent on revenue triggers (unlike Georgia). The 3.99% rate is the statutory floor unless changed by future legislation.

    Corporate tax elimination roadmap

    SB 105 also set the corporate income tax on a 0.5%/year glide path to elimination: 2.5% (2025), 2.25% (2026), 2% (2027), 1.5% (2028), 1% (2029), 0% (2030). When complete, NC will be the first US state to eliminate corporate income tax entirely. Franchise tax remains separately — $1.50 per $1,000 of NC apportioned tax base, minimum $200 — so NC will not become tax-free for C-corps, just income-tax-free.

    Standard deduction and personal exemption

    Standard deduction: $12,750 single / $19,125 HoH / $25,500 MFJ (2026 estimates; index-adjusted). No personal exemption (eliminated by 2014 reform). Itemized deductions allowed but limited to mortgage interest + property tax (capped at $20,000 combined) + charitable. Generally most NC filers take the standard.

    PTET

    N.C. Gen. Stat. §105-154.1 allows eligible pass-through entities to elect a 4.5% entity-level tax (matches the prior 4.5% personal rate; not yet realigned to 2026's 4.25%; verify current). Owners get a personal credit. Annual election. Federal SALT-cap workaround.

    No local income tax

    No North Carolina city or county levies a personal or corporate income tax. The state's revenue framework is straightforward: state income tax + state/local sales tax + local property tax.

    Sales tax

    State 4.75% + county 2% (or 2.25% in Mecklenburg, Durham, and certain transit counties). Combined rates typically 6.75%–7.5%. Most counties at 7%. Wake (Raleigh) 7.25%; Mecklenburg (Charlotte) 7.25% with transit tax. Economic nexus: $100,000 only (no transaction count after 2020).

    Property tax

    Statewide effective average ~0.73% — among the lower in the US, partially offsetting the relatively new no-corporate-tax positioning. County-driven; school districts funded through county appropriation rather than separate millage. Homestead exemption: $25,000 off market value for 65+ low-income filers under the Elderly or Disabled Property Tax Homestead Exclusion (N.C. Gen. Stat. §105-277.1).

    Self-employed and licensing

    Sole proprietors file Schedule C federally, then NC D-400 with NC-specific business income flowing into AGI at the flat 4.25%. LLC annual report: $200 (NC Secretary of State); S-corps file CD-401S and pay franchise tax (min $200). No PPRT-style entity surcharge as in Illinois. Licensing handled at state level by NC Department of Insurance, NC Real Estate Commission, NC Cosmetology Board, etc. Many cities (Charlotte, Raleigh, Durham) have city-level Business Privilege License repealed in 2015 — replaced with state-level Annual Report filing only.

    Worked example: Aisha Patel, freelance UX researcher (Charlotte, single, 2026)

    Aisha's 2026 SE income: $128,000 net.

    Federal: ~$15k income tax + ~$17k SE tax (skipped). North Carolina state: Federal AGI after half-SE: ~119,000 Less NC standard deduction: 12,750 NC TI: ~106,250 NC flat tax: 4.25% × 106,250 = $4,516 Local: $0 (no NC local income tax). Charlotte sales tax: 7.25% on consumption (not income-return relevant). If Aisha elects S-corp (single-member LLC → S-corp election): Pay reasonable comp $78,000 + distribute $50,000 Federal SE-tax savings: ~$7,650 (15.3% of distribution) Less payroll costs: ~$1,500 Less NC franchise tax: $200 Net federal savings: ~$5,950 NC personal tax effectively same (still 4.25% on $128k less SD) PTET election adds federal SALT-cap relief: ~$200–$400 federal benefit NC is among the cleaner states for self-employed compliance.

    Statute references

    • Personal income tax flat rate (and phase-down) — N.C. Gen. Stat. §105-153.7; SB 105 (2021)
    • Corporate income tax phase-out — N.C. Gen. Stat. §105-130.3; SB 105 (2021)
    • Pass-Through Entity Tax election — N.C. Gen. Stat. §105-154.1
    • Sales and use tax — N.C. Gen. Stat. Chapter 105, Article 5
    • Property tax homestead exclusion — N.C. Gen. Stat. §105-277.1
    • Franchise tax — N.C. Gen. Stat. §105-122

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