NC Income Tax: How Does the Tar Heel State Compare to Others?

NC Income Tax: How Does the Tar Heel State Compare to Others?

“The hardest thing in the world to understand is the income tax.” That quote from Albert Einstein (at least according to his accountant) is a famous one. It’s so famous that it even made it on the IRS’s “Tax Quotes” webpage. Yet its famousness pales in comparison to its relatability for folks across the country and here in North Carolina. So how does the NC income tax compare?

The NC Income Tax is the Highest “Flat Tax” in The Country

North Carolina is one of nine states that imposes a “flat” income tax. NC’s tax rate of 5.25% across the board is actually the highest of those nine states. The others range from Indiana at 3.23%, to Massachusetts at 5.05%.

That’s because North Carolina comes with the best qualify of life … right? Not necessarily. According to World Population Review, North Carolina’s “Quality of Life” puts it behind three of the nine “flat tax” states: Utah, Massachusetts and Colorado. But NC is well ahead of the other states at #18, 15 states ahead of Michigan at #33.

The low flat taxes in Utah, Massachusetts and Colorado might not be low enough to get you packing your bags. Instead, your mind is set on the states with no income tax at all. That’s the dream, right?

States with No Income Tax Aren’t Necessarily Better

Common states that come to mind are Florida and Texas. But Florida has high property and sales taxes. And Texas’s property taxes are high, too.

Beyond these common examples, there are several other states that don’t impose income taxes either. New Hampshire and Nevada don’t, but both have fairly high property taxes. Washington doesn’t either, but it imposes a hefty tax on gasoline. Tennessee doesn’t have an income tax. Yet its combined state and local taxes are some of the highest in the country when you consider the sales tax.

These examples and their realities leave you with just Wyoming and Alaska to choose from, neither of which are right down the road.

Let’s make the move a little closer and focus on our neighboring states.

Move a little south, and you’ll deal with income tax rates from 1.1% to 7% in South Carolina, with the highest rate applying to all income greater than $12,250. Head north, and the Virginia rates range from 2% to 5.75%, with the highest applying to all income greater than $17,000. And if you go east to Georgia, you’ll face rates from 1% to 5.75%, with the 5.75% rate applying to all income greater than $7,000.

The NC income tax compares well with states across the country.
Image courtesy of Kelly Sikkema on Unsplash.

If You’re Moving for Politics, You Won’t Notice a Change Either.

Or, maybe with the tense political climate these days, you’re looking to be surrounded by folks you agree with. Republicans might turn to Oklahoma (the most Republican state after Wyoming and Utah), which imposes an income tax rate between 0.5% and 5%, with the highest rate applying to all income greater than $13,550.

And Democrats can turn to Hawaii or Vermont (as well as Massachusetts). Hawaii’s income tax ranges from 1.4% to 11%, with the 11% rate applying to all income over $200,000. In Vermont, the rate ranges from 3.35% to 8.95%, with the highest rate applying to income greater than $416,650.

Ultimately, Einstein might be right about it being hard to understand income taxes. But they’re just one piece of the puzzle. Stay tuned to see how NC’s sales, property and corporate taxes compare across the country as well.

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