Personal income taxes

Taxable income

How is taxable personal income determined in your state?

For residents, “North Carolina taxable income” is the taxpayer’s adjusted gross income determined under the Internal Revenue Code, adjusted for statutory additions and deductions. Among the adjustments are an election to deduct either a North Carolina standard deduction amount or a North Carolina itemized deduction amount. For 2019, the standard deduction amount for married taxpayers filing jointly is $20,000. The itemized deduction includes:

  • a charitable contribution component;
  • a mortgage expense and property tax component (which is limited); and
  • a medical and dental expense component. 

For non-residents, the taxpayer’s “North Carolina taxable income” is computed in the same manner and then multiplied by a fraction—the denominator of which is total modified gross income and the numerator of which is the amount derived from North Carolina sources and attributable to the ownership of any interest in real or tangible personal property in the state, derived from a trade or business conducted in the state or derived from gambling activities in the state. 

Part-year residents compute their North Carolina taxable income similar to non-residents, except the numerator includes all modified gross income derived from all sources while the individual was a resident of the state.

Tax residence

Under what circumstances is an individual deemed resident in your state for personal income tax purposes?

A “resident” is defined as anyone who is domiciled in the state at any time during the taxable year or who resides in the state for other than a temporary or transitory purpose. An individual who is present in the state for more than 183 days during the taxable year is presumed to be a resident. A resident who moves from the state is considered a resident until they have both established a definite domicile elsewhere and abandoned any domicile in North Carolina. 

Rates

What are the applicable personal income tax rates?

For taxable years beginning on or after January 1, 2019, the tax rate is 5.25 per cent. 

Exemptions, deductions and credits

What exemptions, deductions, and credits are available?

The adjustments to federal adjusted gross income include several deductions, including a deduction for taxpayers that are allowed a federal child tax credit under the Internal Revenue Code.

Individuals are allowed a credit for taxes paid to other states or counties, subject to statutory limitations. 

Filing requirements

What filing requirements and procedures apply?

Every resident that has gross income under the Internal Revenue Code that exceeds the North Carolina standard deduction amount must file a return.

Non-residents that meet this standard must file if they also have North Carolina source income.

Returns are due on or before April 15 for calendar-year taxpayers and by the 15th day of the fourth month following the close of the fiscal year for other taxpayers. 

For taxable years beginning on or after January 1, 2019, taxpayers that are granted an automatic extension of time to file a federal income tax return are granted an automatic extension to file the North Carolina return. The taxpayer must certify on the state return that they were granted a federal extension.

Employer obligations

What obligations are imposed on the employer in relation to the collection and remittance of state personal income taxes (eg, withholding)?

Employers are required to deduct and withhold from the wages paid to employees the state income taxes payable by the employee on the wages. Employers must file returns and pay taxes either quarterly, monthly, or semi-weekly, depending on the amount of withholding. Withholding agents who fail to withhold or pay are liable for the taxes and subject to penalties.