Does North Carolina tax military retirement?

Not if you served at least 20 years or were medically retired under Chapter 61. Otherwise it's taxed at 3.99% (2026).

What is North Carolina's income tax rate in 2026?

A flat 3.99%, falling to 3.49% in 2027.

What property tax break do disabled veterans get in North Carolina?

The first $45,000 of the home's appraised value is excluded, for a total and permanent service-connected disability.

North Carolina retirement taxes in 2026: military retired pay, Social Security and pensions

Short answer

North Carolina does not tax Social Security. Military retired pay is deductible if you served at least 20 years or were medically retired (10 U.S.C. Chapter 61). Most other retirement income (private pensions, IRAs, 401(k)s) is taxed at the flat rate: 3.99% in 2026, falling to 3.49% from 2027. Veterans with a total and permanent service-connected disability get the first $45,000 of their home's value excluded from property tax.

Not tax advice. Rules change; confirm with the North Carolina Department of Revenue, your county tax office or a tax professional.

North Carolina at a glance (2026)

	North Carolina
State income tax	Flat 3.99% (2026); 3.49% for 2027–2029
Social Security	Not taxed
Military retired pay and SBP	Deductible with 20+ years of service or a Chapter 61 medical retirement
Pensions, IRA, 401(k)	Taxed, except "Bailey" government pensions vested by Aug 12, 1989
65+ property tax	Elderly or Disabled Exclusion: greater of $25,000 or 50% of value; income up to $38,800 (2026)
Disabled veteran	First $45,000 of appraised value excluded; total and permanent; no income limit
Average property tax	About 0.66% of home value a year

Income tax rate

A flat 3.99% for 2026. Under the 2026 budget law (S.L. 2026-41), the rate falls to 3.49% for 2027–2029, 3.24% for 2030–2032 and 2.99% from 2033, with possible further cuts after that. Sources: NC Department of Revenue, tax rate schedules; NC General Assembly, S.L. 2026-41 summary.

Military retired pay

Deductible (tax years 2021 and later) if you:

served at least 20 years, or
were medically retired under 10 U.S.C. Chapter 61 (no 20-year minimum).

Survivor Benefit Plan payments are deductible if the retiree met either test. Retired NOAA and Public Health Service officers qualify from 2022.

Not deductible: separation or disability severance pay, a former spouse's share, and civilian federal pay. An early retirement with fewer than 20 years that wasn't a medical retirement doesn't meet either test. Source: NC Department of Revenue, Important Notice on the military retirement deduction (May 2022, updated Aug 2022); 2025 D-401 instructions.

Pensions, IRA and 401(k)

Taxed at the flat rate. The exception is the Bailey settlement: North Carolina state and local, federal and military retirement benefits are excluded if the retiree had 5 or more years of creditable service as of August 12, 1989. Other states' government pensions don't qualify. Source: NC Department of Revenue, Bailey decision.

Property tax for homeowners 65+

Elderly or Disabled Exclusion: excludes the greater of $25,000 or 50% of your home's appraised value, with 2026 income up to $38,800.
Circuit Breaker deferral: caps your tax at 4% or 5% of income (income up to $58,200 for 2026), with the rest deferred as a lien. Requires 5 years of ownership, and you reapply each year.
You can use only one program. Apply with Form AV-9 by June 1.

Sources: NC Department of Revenue, 2026 income eligibility memo (June 27, 2025); Form AV-9.

Disabled veterans

The Disabled Veteran Exclusion removes the first $45,000 of your home's appraised value from property tax if you have a total and permanent service-connected disability (or received specially adapted housing). No age or income limit. An unremarried surviving spouse can qualify. Use Form NCDVA-9 with the AV-9. North Carolina has no full exemption for 100% disabled veterans. Source: NC Department of Revenue, Form AV-9.

Common mistakes

Assuming all military retired pay is exempt. It takes 20 years or a Chapter 61 medical retirement.
Assuming pensions and IRAs are exempt. Only Bailey-vested government pensions are.
Treating the $45,000 veteran exclusion as a full exemption. It's the first $45,000 of value.
Missing June 1 for the property tax programs.
Using old rate schedules. The 2027 rate is 3.49% under the 2026 law.

Moving here?

Retiring to Raleigh–Durham: what your home sale leaves you, and the drive to the hospital and VA
PCS: Fort Bragg · Camp Lejeune
Federal rules: Is military retirement taxable?

Chris Harris isn't licensed in North Carolina. He'll introduce you to a vetted licensed agent there. Ask Chris →

FAQ

Does North Carolina tax military retirement?: Not if you served at least 20 years or were medically retired under Chapter 61. Otherwise it's taxed at 3.99% (2026).
Does North Carolina tax Social Security?: No.
What is North Carolina's income tax rate in 2026?: A flat 3.99%, falling to 3.49% in 2027.
What property tax break do disabled veterans get in North Carolina?: The first $45,000 of the home's appraised value is excluded, for a total and permanent service-connected disability.

Sources

Last reviewed October 21, 2026. Not tax advice.