What is new in North Carolina for 2026: 3.99%, a decade of rates written in, and the federal deductions that never arrive

For tax years beginning in 2026, North Carolina taxes every dollar of North Carolina taxable income at 3.99%, down from 4.25% in 2025. That is the last step of a schedule the legislature wrote in 2023, and the 2026 budget replaced what came after it. Session Law 2026-41 threw out the revenue triggers that were supposed to decide the rate for 2027 through 2034 and wrote the numbers in directly: 3.49% for 2027 through 2029, 3.24% for 2030 through 2032, 2.99% from 2033. Few states can tell a filer next year’s rate; North Carolina can tell them the rate for 2033. The other news is what did not change. None of the 2025 federal deductions for tips, overtime, seniors or car-loan interest reach the D-400, because North Carolina starts from federal adjusted gross income and every one of them is taken after it. The Department of Revenue said so in writing in September 2026. The standard deduction and the child deduction are the same as last year. The 2026 return will look like the 2025 return with a lower rate and, for gamblers, one new line.

Two laws did the work, both signed the first week of July 2026. Session Law 2026-31 (Senate Bill 595) moved North Carolina’s reference to the Internal Revenue Code from January 1, 2023 to July 5, 2025, which brings the federal act of July 4, 2025 into state law, and added the state’s own add-back for the new federal research-expense write-off. Session Law 2026-41 (Senate Bill 257, the 2026 Appropriations Act) set the rate schedule and created a North Carolina itemized deduction for gambling losses, retroactive to 2025. The Department of Revenue, hereafter the Department, published a set of FAQs on both laws on September 11, 2026 and updated them October 9. Everything on this page that is not in those two laws is either a ballot question or a figure that did not move.

The rate, this year and the next ten

The 2027 and later figures come from the Fiscal Research Division’s note on the conference report, not from the Department, whose rate page still carries the old line that “additional rate changes may apply to tax years beginning with 2027 based on certain rate reduction triggers.” Expect that page and the 2027 withholding tables to catch up. The two possible cuts after 2035 are the only part of the schedule that still depends on revenue.

What the cut is worth is easy to figure because the rate is flat: 0.26 points of every dollar of North Carolina taxable income, which is $260 per $100,000. A single filer with $60,000 of AGI and the standard deduction pays $1,885 for 2026 against $2,008 for 2025, a saving of $123. A couple at $150,000 saves $324. Withholding tables moved on January 1, 2026 to match, so most wage earners have already received the cut in their paychecks and will not see it as a bigger refund.

What the 2025 federal law does to the North Carolina return: nothing below the line

Form D-400 starts at line 6 with federal adjusted gross income, line 11 of the Form 1040. The deductions Congress created in July 2025, for tips, for overtime premium pay, for people 65 and older, and for interest on car loans, are all taken after that line, in the same part of the federal return as the standard deduction. They reduce federal taxable income and never touch federal AGI. North Carolina therefore never sees them and needs no add-back, because nothing was ever taken out. The Department’s FAQ 14 asks whether a taxpayer may claim these deductions on the state return and answers in one word: no. The General Assembly did not enact a state version. House Bill 11 of 2025, which would have exempted tips and overtime, did not pass.

The same logic covers the larger federal standard deduction and the $40,000 federal SALT cap. North Carolina has its own standard deduction, $12,750 single, $25,500 joint, $19,125 head of household, and the Department confirmed it did not increase for 2025; the statute carries the same figures into 2026, with the 2026 instructions to come in January 2027. North Carolina itemizers never deducted state income tax at all, and their mortgage interest plus property tax has been capped at a combined $20,000 since 2014. The federal cap rising from $10,000 to $40,000 changes nothing on the North Carolina Schedule A except that the property-tax piece now follows the post-2025 federal rule, still inside the $20,000 ceiling. The Department’s FAQ 16 says a filer who held property tax to $10,000 on a 2025 return under the old federal cap should look at it again.

What did flow through is everything the federal act did above the AGI line, because the conformity date moved. Health savings account rules, 529 rules, the educator and business provisions that change AGI: all of it is now North Carolina law too, subject to the state’s list of items it refuses to follow. Two items on that list matter in 2026.

Bonus depreciation, as always. North Carolina has added back 85% of federal bonus depreciation since 2010 and allowed 20% of the add-back in each of the five following years. The Department’s FAQ 44 says that adjustment has not changed. What changed is the federal figure it runs off: the 2025 act restored 100% bonus depreciation, so a landlord, farmer or sole proprietor who expenses a $50,000 piece of equipment federally adds back $42,500 on Schedule S, Part A, Line 3 and recovers $8,500 a year on Part B, Line 23 for 2027 through 2031. Over the asset’s life the state allows the same deduction; it declines to allow it all at once.

Research expenses, new. The federal act let businesses deduct domestic research and experimental costs in full again under new section 174A. North Carolina did not adopt that. Session Law 2026-31 requires an 80% add-back of the amount expensed federally, recovered at 25% a year over the next four years, on Schedule S, Part A, Line 15 and Part B, Line 40, with “Domestic R&E” written on the line. It applies to tax years beginning in 2025 (2022 for taxpayers who elected the federal retroactive treatment). Foreign research costs need no add-back. This reaches an individual only through a Schedule C business, a partnership or an S corporation that does research; most filers will never see the line.

The gambling-loss line

Before 2025, North Carolina taxed every dollar of gambling winnings and allowed no deduction for losses: the North Carolina Schedule A had no line for them. A filer who won $30,000 at the sportsbook and lost $28,000 owed the state tax on $30,000. Session Law 2026-41, sec. 44.2, adds an itemized deduction for gambling losses to the extent allowed under section 165(d) of the Code, for tax years beginning on or after January 1, 2025. On the 2025 form it goes on Schedule A, Line 9, with “Gambling Loss” written on the line.

Three conditions, per the Department’s FAQs 36 through 40. The winnings must be reported on the federal return in full, not netted against losses. The losses are claimed separately, as a North Carolina itemized deduction, and cannot be subtracted from AGI. And the filer must itemize North Carolina deductions on Schedule A and keep records of both winnings and losses. Because the North Carolina standard deduction is small, a gambler with real losses will often itemize for the state while taking the federal standard deduction, which the state allows. The budget law made the deduction retroactive, so a 2025 return already filed with winnings and no losses can be amended on Schedule AM, and the fiscal note put the cost of the retroactive year at about $40 million (verify). The FAQ’s phrase is itemizing “on Schedule A”; the North Carolina Schedule A is meant, but a filer with both federal and state schedules in play should have a practitioner confirm the form before amending.

Amending 2025: the conformity whiplash

North Carolina adopts the Internal Revenue Code as of a fixed date and has to vote to move it. In January 2026 the Department told 2025 filers that the state did not conform to any federal change made after January 1, 2023, including the July 2025 act, and that the federal changes should be left off the state return or the return extended. The July 2026 law then adopted the act, effective for 2025. The Department’s FAQs 3 through 6 say that for tax years beginning before 2026 taxpayers should “file or amend” the applicable return, and that refunds are subject to the normal statute of limitations.

Who is affected. A business filer who followed the January notice and added back the new federal provisions on the 2025 state return may now be owed a refund on the items North Carolina adopted, and may owe the 174A add-back on items it did not. A gambler who itemized losses federally has a new state deduction to claim. A homeowner who capped property tax at $10,000 on the North Carolina Schedule A should recompute within the $20,000 ceiling. An ordinary wage earner with a W-2, the standard deduction and no gambling has nothing to amend; the federal act’s wage-earner provisions were all below the line and never touched the state return either way.

What the voters decided on November 3

Voters approved both tax amendments to the state constitution on November 3, 2026: the 3.5% ceiling on the income tax rate, with 61.91%, and the requirement that the legislature limit property tax levy increases, with 60.42%. The counts are unofficial until certified, and the numbers on these pages do not depend on either.

Senate Bill 1080, the income tax cap. Until this vote the constitution capped the income tax rate at 7%. The amendment lowers the cap to 3.5%, for tax years beginning on or after January 1, 2027. It does not change the 3.99% rate for 2026, which is already set by statute, and the 3.49% scheduled for 2027 is under the new ceiling. Its practical effect is on a future legislature: with the cap at 3.5%, rates cannot be raised back toward where they were in 2024 without another amendment. Because the cap starts with 2027, the 3.99% rate for 2026 is not affected.

House Bill 1089, property tax limits. This amendment requires the General Assembly to pass laws limiting how much property tax levies may increase. It names no number; the limits come later, by statute. Counties in North Carolina reappraise on their own four-to-eight-year cycles, and the reappraisals of 2025 and 2026 in the fast-growing counties produced the complaints behind the measure. Nothing changes on a 2026 property tax bill because of the vote.

Both passed the legislature May 20, 2026 on party-line votes, 30–18 and 31–15 in the Senate and 71–46 in the House.

What this means for the 2026 return

• Wage earners: the rate is 3.99% and withholding already reflects it. Tips and overtime are taxed in full; there is nothing to add back and nothing to deduct.
• Retirees: nothing changed. Social Security, Bailey and qualifying military pay come off; everything else is taxed at 3.99%. The federal $6,000 senior deduction does not reach the state.
• Families: the child deduction table is the same as 2025.
• Homeowners who itemize for the state: the property-tax piece follows the new federal rule, inside the unchanged $20,000 combined cap.
• Gamblers: a new Schedule A line for losses, and possibly a 2025 amendment to file.
• Business owners, landlords and farmers: the bonus-depreciation add-back is larger because the federal figure is back at 100%, and a business with domestic research costs has a new 80% add-back.
• Anyone who followed the Department’s January 2026 notice on a 2025 return with business items: compare the return with the September FAQs and amend if the answer changed.
• Not changed: the standard deduction, the child deduction table, the $20,000 itemized cap, the retirement deductions, the $1,000 estimated threshold and the 90% / 100% safe harbor, the absence of credits, and the absence of any local income tax or estate tax. The corporate rate fell from 2.25% to 2.0% for 2026 on its way to zero in 2030, which does not touch an individual return.