How Much State Income Tax Does North Carolina Withhold From Paychecks?

By: LD Withaar | Reviewed by: Ashley Donohoe, MBA | Updated March 31, 2019

Before 2014, North Carolina had a three-tiered system with rates of 6, 7 and 7.75 percent. Today, the state uses a flat rate system that has seen a decrease in rates – bit by bit – since its inception. However, taxpayers living in the Tar Heel State recently saw a decent reduction of both their personal and corporate state income tax rates for the 2019 tax year.

As a result, individual taxpayers' personal state income tax rates fell from 2018 tax year rates of 5.49 percent, to 5.25 percent. Now, taxpayers living in the ninth most populated state in the U.S. can enjoy a little welcomed tax burden relief.

Tip

The state of North Carolina has an income tax rate of 5.49 percent for the 2018 tax year. However, the 2019 tax year – for taxes filed in 2020 – taxpayers will see a reduction of this rate to 5.25 percent.

First Things First

When you get a job in North Carolina, your new employer will have you fill out a Form W-4 for federal income tax and a North Carolina Employee’s Withholding Allowance Certificate for state tax. The information you provide on these forms tells your employer how much how much federal and state income tax to deduct from your paychecks.

North Carolina has three versions of the Employee’s Withholding Allowance Certificate: Form NC-4, Form NC-4EZ and Form NC-4 NRA. Which one you fill out depends on your individual tax situation. For example, Form NC-4 NRA is for non-U.S.citizens. If you don’t fill out one of these forms, the state of North Carolina requires your employer to withhold state tax from your pay at the single with no allowances rate.

NC-4EZ is for single taxpayers who do not plan to itemize and who take the standard deduction, while NC-4 is for taxpayers who itemize their deductions. The total number of allowances you end up with after filling out the worksheet changes the amount of tax that will be withheld from your paycheck. It factors in that you itemize deductions, may have children and may have federal and state income tax adjustments. So, even though North Carolina has a flat tax rate, if you itemize, the taxes deducted from your paycheck are adjusted based on the number of allowances you claim on NC-4.

The Military Exception

Not everyone who works in North Carolina has to pay their state income tax. If you’re a resident of another state but are living in North Carolina because your military spouse is stationed there, you do not have to pay North Carolina income tax. However, you do have to meet three conditions. Your military spouse has to be officially stationed in North Carolina per military orders.

Second, you have to be in North Carolina for no other reason than to be with your spouse. Lastly, both you and your spouse have to be living in North Carolina. If all of these conditions apply to you, you can check box 4 on Form NC-4EZ and write the name of your home state on the line next to it. This has to be done annually.

Other State Income Tax Exceptions

There’s also an exemption for seamen. No state income tax is withheld if you work on a fishing boat or fish processing boat. Additionally. no state tax is withheld if your ship or boat is involved in foreign, coast-wide, intercoastal or interstate trade. This also applies if your vessel is involved in trade with states that do not share borders with North Carolina. This excludes Virginia, Tennessee, Georgia and South Carolina.

One other exemption is wages that are paid to you by a federally recognized Indian tribe. You have to be living and working on the Indian reservation to qualify for this exemption. If this applies to you, fill out Form NC-4EZ and check box 3.

Take Your 2019 Standard Deduction

North Carolina’s flat tax rate for 2018 is 5.49 percent, and standard deductions were $8,750 if you filed as single, and $17,500 if you were married and filing jointly. However, 2019 brought an increase of standard deductions to $10,000 for single taxpayers, and $20,000 for married couples filing jointly.

Use an Income Tax Calculator

If you don’t itemize your deductions, figuring out how much state income tax North Carolina will withhold from your paychecks is pretty straightforward. For the 2018 tax year – meaning taxes filed in 2019 – multiply your gross pay by 0.05499. However, if you itemize deductions you can avail yourself of one of the numerous tax calculators available online, just be sure you are using a North Carolina income tax calculator and that it’s for the year that you want to calculate.

The more boxes you have to fill in on the pay calculator, the more accurate the result will be. A North Carolina income tax calculator that includes boxes for your federal, state and local allowances and the ZIP code where you work is going to be more accurate than one that just requires the amount of your pay and your filing status.

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About the Author

LeDona Withaar has over 20 years’ experience as a securities industry professional and finance manager. She was an auditor for the National Association of Securities Dealers, a compliance manager for UNX, Inc. and a securities compliance specialist at Capital Group. She has an MBA from Simmons College in Boston, Massachusetts and a BA from Mills College in Oakland, California. She has done volunteer work in corporate development for nonprofit organizations such as the Boston Symphony Orchestra. She currently owns and operates her own small business in addition to writing for business and financial publications such as Budgeting the Nest, PocketSense and Zacks.

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