State retirement tax · North Carolina
Retirement tax rules for North Carolina residents (2026 guide)
North Carolina taxes most retirement income at a flat 3.99% in 2026, down from 4.25%, and a 2026 law schedules more cuts from 2027. Social Security is exempt, and two groups often owe nothing on their pensions: government retirees protected by the 1998 Bailey settlement and military retirees with 20 years of service.
By Mindaugas Laucius · Last reviewed October 21, 2026
Rate on retirement income
3.99%
Taxes Social Security?
No
Approx. tax on $90k retirement income
$2,394
Pension carve-outs
Yes
Quick figures: a single filer with $90,000 of income, $30,000 of it Social Security.
Who pays and who doesn't
Social Security is not taxed. Government pensions are exempt for retirees who were vested in their system by August 12, 1989 — the Bailey settlement, which also covers federal and military retirement. Since 2021, military retirement pay for 20 or more years of service is deductible too. Other pensions, 401(k) and IRA withdrawals are taxed at the flat rate after the standard deduction ($12,750 single, $25,500 married filing jointly).
Property tax relief for 65+
The elderly or disabled homestead exclusion removes the greater of $25,000 or 50% of your home's appraised value from property tax if you're 65+ (or totally disabled) and your income is no more than $38,800 for 2026. Apply with the county tax office.
Sales tax
The state sales tax is 4.75%, with county rates bringing most areas to 6.75%–7.5%. Groceries escape the state rate and pay only the 2% local rate.
Worked examples
A couple drawing from IRAs
- $70,000 of IRA withdrawals; $40,000 of Social Security exempt.
- $70,000 − $25,500 standard deduction = $44,500.
- $44,500 × 3.99% = $1,775.55.
About $1,776 of North Carolina tax for the year.
A Bailey-protected teacher
- $50,000 state-system pension, vested before August 12, 1989, + $28,000 of Social Security.
North Carolina tax on both: $0.
A 20-year military retiree
- $42,000 of military retirement pay deducted in full.
$0 on the military pension; other income is taxed as usual.
Recent and pending changes
- 2026: the flat rate fell to 3.99% from 4.25%; a 2026 law schedules further reductions toward 2.99% beginning in 2027.
- 2021: deduction for military retirement pay with 20+ years of service.
Run your own numbers — pick North Carolina in the calculator’s Taxes tab for a year-by-year estimate. Or compare all 50 states and DC.
Thinking about a move? The free state-to-state retirement tax comparison puts North Carolina next to any other state on your own income.
North Carolina questions
How do I know if I'm Bailey-vested?
You needed five years of creditable service in a North Carolina state or local, federal or military retirement system by August 12, 1989. Your retirement system can confirm it.
Does North Carolina tax Social Security?
No. Social Security benefits are fully deductible on the North Carolina return.
Is the homestead exclusion income-limited?
Yes — $38,800 of income for 2026 for the elderly or disabled exclusion. Higher-income seniors may still qualify for the circuit-breaker deferral program.