NC’s personal income tax rate dips to 4.25% at start of 2025

North Carolina is among nine states where the personal income tax rate was lowered this week as state governments welcomed the new year with scheduled tax reductions.

The next phase of the General Assembly’s income tax reduction plan took effect on Wednesday for all North Carolina workers, dropping the flat tax rate from 4.5% in 2024 to 4.25% for the 2025 calendar year. The phased tax reductions started in 2022 and will continue into 2026 when the rate is scheduled to lower to 3.99%.

“The latest tax rate cut is a good way for North Carolinians to ring in the new year,” said Brooke Medina, Vice President of Communications at the John Locke Foundation. “This rate cut means taxpayers will be able to keep more of their hard-earned money. Over the past decade, the fiscally-conservative General Assembly has shown level-headed restraint when it comes to government spending, while remaining steadfast in their commitment to cutting taxes. This has resulted in higher revenues and undoubtedly made our state a more attractive place to live and work.”

“But conservatives like @JohnLockeNC vice-president Brooke Medina say the tax cuts have fueled the state’s economic growth.

‘The legislature has done a really good job in…taking an incremental approach to this,’ Medina said.”#ncpolhttps://t.co/qZTrXjUCm6

— Brooke Medina (@Brooke_Medina_) January 2, 2025

The Tax Foundation outlined eight additional states that planned tax cuts for Jan. 1, including Indiana, Iowa, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, and West Virginia. Every state undergoing a tax reduction has a Republican-controlled state legislature, with the exception of New Mexico, which is controlled by Democrats in the legislature and governor’s office. Iowa and Louisiana are transitioning from a graduated tax system to a flat tax rate, which North Carolina has had since 2014.

The corporate income tax rate decreased from 2.5% in 2024 to 2.25% in 2025, and by 2030, the corporate income tax is scheduled to be entirely eliminated.

State agencies have reported other fiscal changes that took effect in North Carolina on the first day of 2025 as well. The state’s motor fuels and alternative fuels rate decreased from 40.4 cents to 40.3 cents per gallon or gallon equivalent. The North Carolina Department of Transportation announced an annual toll rate increase for the Triangle Expressway and Monroe Expressway that began on Wednesday. The State Board of Elections announced that the contribution limit for North Carolina candidates and political committees increased by $400 per election, from $6,400 to $6,800 in the new year.

The post NC’s personal income tax rate dips to 4.25% at start of 2025 first appeared on Carolina Journal.