Overview of North Carolina Taxes
North Carolina has a flat income tax rate of 5.499%, meaning all taxpayers pay this rate regardless of their taxable income or filing status. This can make filing state taxes in the Tar Heel State simple. Even if your salary changes, you'll be paying the same rate. No cities in North Carolina have local income taxes.
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- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
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North Carolina Paycheck Calculator
Photo credit: ©iStock.com/Joel Carillet
North Carolina Paycheck Quick Facts
How Your North Carolina Paycheck Works
When you get paid in North Carolina, you will notice that money has been withheld from your wages for FICA, federal and state income taxes. FICA (Federal Insurance Contributions Act) tax is a federal payroll tax paid by both employees and employers. The tax is made up of both Social Security and Medicare taxes. Social Security is taxed at 6.2% of your salary and Medicare at 1.45%. Your employer matches these rates, so the total contribution is doubled. (One thing to keep in mind: If you are self-employed, you are expected to pay the entire amount yourself.) If you make in excess of $200,000, those wages are subject to a 0.9% Medicare surtax. Employers do not match surtax payments.
Besides FICA taxes, you will see federal income taxes coming out of your paychecks. This money goes to the IRS where it is counted toward your annual income taxes. How much you pay in federal income taxes varies from person to person, and depends on factors such as your salary, your marital status and how many allowances you claim.
When you start a new job in North Carolina (or any other state), you will have to fill out a W-4 form and your employer will use the information you provide on this form to determine how much to withhold in taxes from your paycheck. The more allowances you claim on your W-4, the less is withheld in taxes and the bigger your paycheck is. A word of caution about claiming a lot of allowances, though: If you claim more allowances than you qualify for, you run the risk of underpaying your taxes all year and having to pay a lump sum to the IRS in April.
Because of President Trump’s new tax plan, withholding calculations for federal income tax changed for the 2018 tax year. Changes took effect in early 2018 but it’s still a good idea to check your W-4 and ensure that the information is correct. If you do find that you want to change the withholding information on your W-4, simply fill out a new W-4 and submit it to your employer.
North Carolina Median Household Income
Every taxpayer in North Carolina will pay 5.499% on their taxable income for state tax. North Carolina has not always had a flat income tax rate. In 2013, the North Carolina Tax Simplification and Reduction Act radically changed the way the state collected taxes. The act went into full effect in 2014, but before then, North Carolina had a three-bracket progressive income tax system, with rates ranging from 6% to 7.75%. The new law introduced a single flat rate of 5.75% and more than doubled the standard deduction for North Carolina taxpayers.
No cities in North Carolina levy local income taxes.
How You Can Affect Your North Carolina Paycheck
North Carolina taxpayers who find themselves facing a big bill every tax season should review their W-4 forms to see if they are claiming too many allowances. If this is the case, an easy enough fix is to simply claim fewer allowances. (You will need to fill out a new W-4 in order to do this.) Remember that if you claim fewer allowances, more money will be taken out of your paycheck for taxes. Your paychecks will be smaller as a result. Having smaller paychecks may seem less than ideal, but keep in mind that you owe these taxes anyway. You are just spreading out your tax payments so that they happen over an entire year. Otherwise, you’d have to come up with a lump sum payment in April.
You can also elect to have a dollar amount withheld from each of your paychecks, on top of the allowances you claim, to go toward your taxes. Again, your paychecks will be smaller, but you’ll lower the chances of owing money to Uncle Sam during tax season.
You can also save money on taxes by putting your money into pre-tax accounts like a 401(k), 403(b) or health savings account (HSA), if your employer offers these options.
Retirement accounts like a 401(k) and 403(b) not only help you save money for your future, but can also help lower how much you owe in taxes. The money that goes into these accounts comes out of your paycheck before taxes are deducted, so you are effectively lowering your taxable income while saving for the future.
HSAs work in a similar manner and you can use the money you put in there toward medical-related expenses like copays or certain prescriptions.
Not yet a North Carolina taxpayer, but planning a move to the Tar Heel state soon? Take a look at our North Carolina mortgage guide for important information about rates and getting a mortgage in the state.
North Carolina Top Income Tax Rate
Most Paycheck Friendly Places
SmartAsset's interactive map highlights the most paycheck friendly counties across the country. Zoom between states and the national map to see data points for each region, or look specifically at one of the four factors driving our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology Our study aims to find the most paycheck friendly places in the country. These are places in the country with favorable economic conditions where you get to keep more of the money you make. To find these places we considered four different factors: semi-monthly paycheck, purchasing power, unemployment rate and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances. We applied relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties we assumed a $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment rate index that shows the counties with the lowest unemployment. For income growth, we calculated the annual growth in median income over five years for each county and indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2017 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics