How North Carolina taxes retirement income
North Carolina does not tax Social Security benefits. Pensions and 401(k)/IRA withdrawals are partly taxed (there is an exclusion, then the rest is taxed). Social Security is fully exempt. Most private pensions and 401k/IRA withdrawals are taxed as ordinary income at the flat 3.99% rate. Two carve-outs: (1) the Bailey settlement fully exempts government (state/local/federal, including military) retirement pay for retirees vested by August 12, 1989; (2) a 2021 law (effective tax year 2021) separately allows ANY retired member of the US Armed Forces with 20+ years of service, or medically retired under 10 U.S.C. Chapter 61, to fully deduct military retirement pay and Survivor Benefit Plan payments regardless of the 1989 vesting date, so most military retirees are fully exempt even without Bailey protection.
Retirement income tax in North Carolina, at a glance
| Income type | Taxed by North Carolina? |
|---|---|
| Social Security | No |
| Pensions | Partially (exclusion applies) |
| 401(k) / IRA withdrawals | Yes |
| Estate / inheritance tax | None |
| Avg. property tax rate | 0.66% of home value |
Does North Carolina tax Social Security benefits?
No. North Carolina does not tax Social Security benefits.
Does North Carolina tax pensions and 401(k) or IRA withdrawals?
Partly. Social Security is fully exempt. Most private pensions and 401k/IRA withdrawals are taxed as ordinary income at the flat 3.99% rate. Two carve-outs: (1) the Bailey settlement fully exempts government (state/local/federal, including military) retirement pay for retirees vested by August 12, 1989; (2) a 2021 law (effective tax year 2021) separately allows ANY retired member of the US Armed Forces with 20+ years of service, or medically retired under 10 U.S.C. Chapter 61, to fully deduct military retirement pay and Survivor Benefit Plan payments regardless of the 1989 vesting date, so most military retirees are fully exempt even without Bailey protection.
For the mechanics of required withdrawals in retirement, see what is an RMD.
Sources
- North Carolina taxation of retirement income (Social Security, pensions, 401(k)/IRA): North Carolina Department of Revenue / Taxation.