North Carolina State Income Tax Rate and Brackets for 2025

Key Takeaways

• North Carolina lowers flat individual income tax rate to 4.25% starting January 1, 2025.
• Corporate income tax drops to 2.25% in 2025, aiming for 0% by 2030.
• All taxable income, including capital gains and most retirement income, taxed at flat 4.25% rate.

North Carolina has introduced a new flat individual income tax rate of 4.25% starting January 1, 2025. This change is part of a larger plan to lower taxes for residents and businesses, making the state more appealing for people to live and work. The update affects everyone who earns taxable income in North Carolina, including workers, retirees, and business owners. Here’s a detailed look at what’s changed, who is affected, what actions are needed, and what this means for people with pending tax matters or those planning to move to North Carolina.

Summary of What Changed

The main change is the drop in the flat individual income tax rate from 4.5% in 2024 to 4.25% in 2025. This means that all taxable income earned in North Carolina in 2025 will be taxed at 4.25%, no matter how much you earn. There are no tax brackets—everyone pays the same rate. The state plans to lower this rate even further to 3.99% in 2026.

The corporate income tax rate is also going down, from 2.5% in 2024 to 2.25% in 2025. The goal is to reach a 0% corporate tax rate by 2030. These changes are part of a multi-year plan to make North Carolina more competitive and to give residents more money in their pockets.

Who Is Affected by the New Tax Rate

The new flat individual income tax rate of 4.25% affects:

• All individuals who earn taxable income in North Carolina: This includes full-time and part-time workers, self-employed people, and those with investment income.
• Retirees: Most retirement income is taxed, except for certain state and military retirement systems.
• Employers: Businesses must update their payroll systems to withhold the new 4.25% rate from employee wages.
• People with capital gains: Profits from selling stocks, property, or other investments are taxed at the same flat rate.
• New residents: Anyone moving to North Carolina in 2025 will pay the new flat rate on income earned in the state.

Effective Dates

• January 1, 2025: The new 4.25% flat individual income tax rate takes effect.
• 2026 (planned): The rate is expected to drop again to 3.99%.
• 2030 (planned): The corporate income tax rate is set to reach 0%.

Required Actions for Taxpayers and Employers

If you live or work in North Carolina, or plan to move there, here’s what you need to do:

For Individuals:
– Check your paychecks: Starting in January 2025, your employer should withhold state income tax at the new 4.25% rate. This means you may see a small increase in your take-home pay compared to 2024.
– Update your tax planning: If you make estimated tax payments or have other sources of income, adjust your calculations to use the new rate.
– File your state tax return: When you file your 2025 North Carolina income tax return, all taxable income will be taxed at 4.25%. You can file and pay online at the North Carolina Department of Revenue.
– Review retirement income: Most retirement income is taxed, except for certain state and military pensions. Double-check if your retirement income is exempt.

For Employers:
– Update payroll systems: Make sure your payroll provider or software is set to withhold state income tax at the new 4.25% rate for all wages paid in 2025.
– Use updated withholding tables: The North Carolina Department of Revenue has released new tables and instructions for 2025. These must be used to calculate the correct amount to withhold from employee paychecks.
– Communicate with employees: Let your staff know about the change in the state income tax rate and how it may affect their pay.

For Retirees:
– Check if your pension is exempt: Some state and military retirement systems are not taxed by North Carolina. If you receive a pension, find out if it qualifies for this exemption.
– Plan for federal taxes: Even if North Carolina does not tax your Social Security benefits, the federal government might. Make sure you understand your total tax situation.

For Investors:
– Capital gains taxed at 4.25%: Profits from selling investments are taxed at the same flat rate as other income. There are no special rates for capital gains in North Carolina.

For New Residents:
– Plan for the flat tax: If you move to North Carolina in 2025, all income earned in the state will be taxed at 4.25%. This may be higher or lower than your previous state, so plan your finances accordingly.

Implications for Pending Applications and Tax Matters

If you have pending tax matters or are in the middle of an immigration process that involves income verification or tax filings, here’s what you need to know:

• Pending tax returns for 2024: These will still use the 4.5% rate. Only income earned in 2025 and beyond will be taxed at 4.25%.
• Amended returns: If you need to amend a 2024 return, the old rate applies. For 2025 returns, use the new rate.
• Immigration applications: Many immigration forms and processes require proof of income and tax compliance. Make sure to use the correct tax rate for the year in question. For example, if you are applying for a visa or green card and need to show your 2025 income, use the 4.25% rate for North Carolina income tax.
• Employer sponsorships: Employers sponsoring foreign workers must show compliance with state tax laws. Ensure payroll records reflect the new withholding rate.

Background and Historical Context

North Carolina used to have a graduated income tax system, which meant people with higher incomes paid a higher percentage in taxes. In 2014, the state switched to a flat tax system, starting at 5.8%. Over the years, the rate has been lowered several times:

• 2014: Flat tax introduced at 5.8%
• 2015-2023: Gradual reductions
• 2024: 4.5%
• 2025: 4.25%
• 2026 (planned): 3.99%

The 2023 budget bill sped up the process, lowering the rate to 4.25% in 2025 and aiming for 3.99% in 2026. The goal is to give residents more money to spend and to attract businesses and workers to North Carolina.

Why the Flat Tax Rate Matters

A flat individual income tax rate means everyone pays the same percentage, no matter how much they earn. This makes tax calculations easier and can be seen as fairer by some people. It also means there are no complicated tax brackets to figure out.

Key Features of the 2025 North Carolina Tax System

• Flat tax rate: 4.25% for all taxable income
• No tax brackets: Everyone pays the same rate
• Tax base: Includes wages, most retirement income, and capital gains
• Social Security benefits: Not taxed by North Carolina, but may be taxed by the federal government
• Corporate income tax: 2.25% in 2025, with plans to reach 0% by 2030

Practical Implications for Different Groups

For Workers and Employees:
– Simpler tax planning: With a flat rate, it’s easier to figure out how much you owe.
– More take-home pay: The lower rate means you keep a bit more of your paycheck.
– No need to worry about moving into a higher tax bracket: The rate is the same for everyone.

For Employers:
– Easier payroll calculations: One rate for everyone makes payroll simpler.
– Lower corporate taxes: The drop in the corporate tax rate can free up money for hiring or investment.

For Retirees:
– Most retirement income is taxed: Unless you have a qualifying state or military pension, expect to pay the flat rate.
– Social Security is not taxed by the state: This can be a relief for many retirees.

For Investors:
– Capital gains taxed at 4.25%: No special rates, so planning is straightforward.

For Immigrants and Newcomers:
– Easy to understand: The flat rate makes it simple for newcomers to plan their finances.
– No surprises: You know exactly what percentage of your income will go to state taxes.

Expert and Stakeholder Perspectives

Tax experts generally see the gradual reduction in the flat individual income tax rate as a positive move for residents, as it increases disposable income. Business groups are pleased with the lower corporate tax rates, saying it will help attract and keep companies in North Carolina. However, some financial analysts warn that lower tax rates could mean less money for public services like schools and roads, so the state will need to manage its budget carefully.

As reported by VisaVerge.com, these changes are part of a larger effort to make North Carolina more competitive and to give both residents and businesses more reasons to stay or move to the state.

Future Outlook

Looking ahead, North Carolina plans to continue lowering taxes:

• 2026: The flat individual income tax rate is set to drop to 3.99%.
• 2030: The corporate income tax is planned to reach 0%.

There are no plans to bring back graduated tax brackets. The flat tax system is expected to stay in place for the foreseeable future.

Official Resources and Where to Get Help

• Filing and paying taxes: You can file and pay your North Carolina income taxes online at the North Carolina Department of Revenue.
• Withholding tables and instructions: Employers can find the latest information on how much to withhold from paychecks on the Department of Revenue’s website.
• Personalized advice: If you have questions about your specific situation, it’s a good idea to talk to a tax professional who knows North Carolina tax law.

Summary Table: North Carolina Individual Income Tax Rates

Actionable Takeaways and Next Steps

• If you live or work in North Carolina: Make sure your employer is withholding the correct amount from your paycheck starting in January 2025.
• If you’re self-employed or have other income: Adjust your estimated tax payments to reflect the new 4.25% rate.
• If you’re a retiree: Check if your pension is exempt from state taxes and plan for any federal taxes on Social Security.
• If you’re an employer: Update your payroll systems and use the new withholding tables for 2025.
• If you’re moving to North Carolina: Plan your finances using the flat 4.25% rate for all income earned in the state.
• If you have pending tax matters: Use the correct rate for the year in question—4.5% for 2024, 4.25% for 2025, and 3.99% for 2026 (planned).

For more details and to file your taxes, visit the North Carolina Department of Revenue’s official website. This is the best place to find up-to-date forms, instructions, and official guidance.

Conclusion

The move to a flat individual income tax rate of 4.25% in North Carolina for 2025 is a major change that affects all residents, workers, retirees, and businesses. The new rate makes tax planning easier and puts more money in people’s pockets. Employers and individuals should make sure they’re using the correct rate for withholding and filing. With more reductions planned in the coming years, North Carolina continues to position itself as a state that welcomes both new residents and businesses. If you have questions or need help, reach out to a tax professional or visit the state’s official tax website for the latest information.

Learn Today

Flat Tax Rate → A single uniform tax rate applied to all taxable income without brackets or tiers.
Capital Gains → Profits earned from selling investments like stocks or property, taxed as income.
Withholding → The portion of an employee’s wages withheld by an employer for tax payment.
Estimated Tax Payments → Advance income tax payments made periodically by individuals with non-withheld income.
Corporate Income Tax → Tax imposed on business profits, lowered in North Carolina from 2.5% to 2.25% in 2025.

This Article in a Nutshell

North Carolina sets a 4.25% flat income tax rate for 2025, easing tax burdens for residents and businesses. This rate replaces the 4.5% of 2024, simplifying tax planning and increasing take-home pay. Corporate tax also falls to 2.25%, encouraging business growth with more reductions planned through 2030.
— By VisaVerge.com