How do NC’s taxes compare to neighboring states? Here’s what one study says.
It’s income tax season in North Carolina and around the country, which means a refund could be headed your way, or it’s time to pay up the taxes you owe.
Individual income tax rates are going down in North Carolina due to provisions in the 2021 state budget. This year’s tax rate is 4.75%, down from 4.99% in 2022. Rates will continue going down over the next several years, reaching 3.99% in 2027.
But have you ever wondered how tax rates in North Carolina compare to other states?
WalletHub, a financial services firm that publishes studies “intended to provide industry transparency for consumers,” released a new study earlier this month comparing and ranking state and local tax rates in all 50 states and Washington, D.C.
We’ve broken down the information WalletHub provided about North Carolina’s tax rates, as well as how our state ranks compared to our neighbors.
Where does NC rank for tax rates?
North Carolina ranked 20th overall — meaning our state has the 20th-lowest tax rates as compared to other states — in WalletHub’s study.
WalletHub calculated an “effective” local and state tax rate for each state based on characteristics of a “median U.S. household” — making an annual income of $69,508, owning a home valued at $244,900, owning a car valued at $26,220 and spending “annually an amount equal to the spending of a household earning the median U.S. income.” The calculation of the effective tax rate includes several taxes, including income, property, sales and more.
Based on those characteristics, WalletHub calculated that the effective state and local tax rate in North Carolina is 10.51%, or $7,307, of the median U.S. household income.
In a separate study last year, WalletHub found that North Carolina ranked 35th in the nation when it comes to tax burden, or “the proportion of total personal income that residents pay toward state and local taxes.”
WalletHub’s study also looked at other taxes, including real estate, gas and cigarette taxes. North Carolina has the fourth-lowest cigarette tax on a pack of 20 cigarettes, according to the study.
How do NC tax rates compare to neighboring states?
Two states that border North Carolina have lower tax rates, according to WalletHub.
▪ Tennesee ranked 10th, with an effective local and state tax rate of 8.58%, according to WalletHub’s methodology.
▪ South Carolina ranked 13th, meaning that state has the 13th-lowest tax rates in the country.
Other states that neighbor North Carolina have higher tax rates, according to the study.
▪ Georgia ranked closely behind North Carolina at No. 21. That state’s effective local and state tax rate on the U.S. median household income was 10.55%, according to WalletHub’s calculations.
▪ Virginia was ranked 23rd. That state’s tax rate was 10.69%, according to WalletHub.
WalletHub found that Alaska has the lowest effective tax rate in the nation, at 6.05%. Illinois has the highest rate, at 15.05%.
More information
Want to see WalletHub’s report for yourself and compare more states? Visit wallethub.com/edu/best-worst-states-to-be-a-taxpayer/2416 to view the full report and methodologies.
This story was originally published March 16, 2023 at 6:40 AM with the headline "How do NC’s taxes compare to neighboring states? Here’s what one study says.."
