North Carolina does not tax Social Security benefits
North Carolina is one of the states that does not impose a state income tax on Social Security retirement, survivor, or disability benefits. If you receive Social Security payments and live in North Carolina, you will not owe state income tax on those benefits, regardless of how much you receive or what your other income is.
This is different from federal income tax. The federal government may tax your Social Security benefits depending on your total income for the year — a calculation based on what the IRS calls "combined income." North Carolina's exemption applies only to state taxes, not federal ones. You may still need to file a federal return and potentially pay federal tax on your benefits.
The state exemption makes North Carolina one of the more favorable states for Social Security recipients, but you still need to understand your federal tax situation and file correctly with the IRS.
Key Takeaways
- North Carolina does not tax Social Security benefits at the state level, so you owe no state income tax on these payments.
- Federal tax on Social Security is separate and depends on your combined income (Social Security plus other income), not on North Carolina's rules.
- You may still need to file a federal tax return even if you owe no North Carolina state tax.
- Other retirement income, pensions, and wages are still subject to North Carolina state income tax.
How federal tax on Social Security works
Even though North Carolina does not tax Social Security, the federal government may. The IRS uses a formula based on your "combined income," which is your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.
If your combined income exceeds certain thresholds, you may owe federal tax on up to 85 percent of your Social Security benefits. For 2024, the thresholds are $25,000 for single filers and $32,000 for married couples filing jointly. These thresholds have not changed since 1984, so more retirees cross them each year as incomes rise.
The calculation is complex, and many people benefit from working through it with a tax preparer or using tax software that handles Social Security taxation. The IRS provides a worksheet in Publication 915 if you want to calculate it yourself.
What counts as income for the federal calculation
Combined income includes wages, self-employment income, interest, dividends, capital gains, and distributions from retirement accounts like IRAs and 401(k)s. It also includes pension income and rental income. Essentially, any money you receive that is normally taxable counts toward the threshold.
Some income does not count. Municipal bond interest is excluded, as are certain other nontaxable items. But most common sources of retirement income do count, which is why someone with a modest Social Security benefit might still owe federal tax if they also have a pension or are still working part-time.
This is why retirees with multiple income sources often find themselves subject to federal Social Security taxation even if their total income seems modest.
North Carolina state income tax on other retirement income
While Social Security is exempt from North Carolina state tax, other retirement income is not. If you receive a pension, distributions from an IRA or 401(k), or income from continued work, North Carolina taxes those at its standard state income tax rate, which is currently 4.99 percent.
Some types of retirement income do receive special treatment under North Carolina law. Military pensions and certain other government pensions have exemptions or deductions available, but these are narrower than the Social Security exemption and depend on your specific situation and when you retired.
You should review your total North Carolina taxable income each year to determine whether you owe state tax, even if your Social Security portion is untaxed.
Filing requirements when you receive Social Security
You must file a federal tax return if your combined income exceeds the threshold for your filing status. For 2024, a single person with combined income over $25,000 should file. The threshold is higher for married couples and varies by age — people 65 and older have a higher threshold because they receive a larger standard deduction.
North Carolina does not require a separate state return if you owe no state tax, but you may want to file one anyway if you had state taxes withheld from other income during the year. Filing allows you to claim a refund of any overpayment.
Even if you do not owe tax, filing a return can be worthwhile if you are due a refund or if you may have access to for tax credits like the Earned Income Tax Credit or the Child Tax Credit.
How to report Social Security on your federal return
Social Security benefits are reported on Form 1040, the main federal income tax return. You will receive a Form SSA-1099 from Social Security each January showing the total benefits you received in the previous year. Use this form to fill in the Social Security income line on your return.
If you are using tax software, it will walk you through the Social Security questions and calculate whether any of your benefits are taxable. If you are filing by hand or with a preparer, they will use the IRS worksheet in Publication 915 to determine the taxable amount.
The taxable portion of your Social Security (if any) is added to your other income on your return. You do not report it separately on a North Carolina return because the state does not tax it.
Withholding and estimated tax payments
If you expect to owe federal tax on your Social Security benefits, you can have tax withheld directly from your benefit payments. You do this by completing Form W-4V and submitting it to Social Security. You can choose to have 7, 10, 12, or 22 percent of your benefits withheld.
Some retirees use withholding to avoid owing a large amount when they file their return. Others make quarterly estimated tax payments if they have other income that is not subject to withholding, such as investment income or self-employment income.
Planning your withholding or estimated payments early in the year can help you avoid penalties and interest if you owe tax when you file.
Frequently Asked Questions
Do I have to file a North Carolina state tax return if I only receive Social Security?
No. If Social Security is your only income and you have no other North Carolina taxable income, you do not need to file a state return. However, if you had state taxes withheld from other income during the year, filing allows you to claim a refund.
Will my Social Security benefits affect my Medicare premiums?
Yes, but this is a federal calculation, not a North Carolina one. Your Social Security income counts toward your "modified adjusted gross income," which determines your Medicare Part B and Part D premiums. Higher income can result in higher premiums. This is separate from income tax.
What if I moved to North Carolina after receiving Social Security in another state?
North Carolina taxes are based on your residency and income during the tax year. If you moved to North Carolina and became a resident, you follow North Carolina rules going forward. Your prior-year taxes in another state are handled according to that state's rules for the time you lived there.
Can I deduct medical expenses or charitable donations to reduce my federal Social Security tax?
These deductions reduce your overall taxable income, which can lower the amount of Social Security that becomes taxable. However, you must itemize deductions on your federal return to claim them, and the threshold for medical expense deductions is high. Most people benefit more from taking the standard deduction.
Is there a way to reduce the amount of my Social Security that is taxable?
Reducing other income sources is the main strategy. If you have control over when you take distributions from retirement accounts or when you realize investment gains, timing these to stay below the combined income threshold can reduce or eliminate taxation of your benefits. A tax preparer can model different scenarios for your situation.