- Home
- Taxes
- State Tax
North Carolina paychecks might get a boost as personal income tax rates drop toward 2.99%. But a growing debate has lawmakers at a crossroads.
By
Kate Schubel
published
31 March 2026
in News
When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works.
(Image credit: Getty Images)
- Copy link
- X
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Contact me with news and offers from other Future brands Receive email from us on behalf of our trusted partners or sponsors By submitting your information you agree to the Terms & Conditions and Privacy Policy and are aged 16 or over.You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Signup +
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Signup +
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Signup +
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Signup +
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Signup +
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Signup +
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Signup +
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Signup +
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
Signup + An account already exists for this email address, please log in. Subscribe to our newsletterIncome tax cuts are coming to North Carolina, or are they? Thanks to a landmark law passed just a few years ago, Tarheel State taxpayers are slated to see personal income tax rates trigger annually downward until 2028. But a new legislative push seeks to hit the brakes.
Gov. Josh Stein (D) and some Republican state House leaders are warning of a $2.8 billion to $3.5 billion budget shortfall over the next two years. That could potentially threaten funding for critical services unless the income tax cuts are paused.
"We are not a poor state," Gov. Stein remarked to reporters, while proposing a $1.4 billion plan to shore up immediate services — particularly the state's Medicaid program. "But we are making ourselves a poor state by reckless, pre-programmed tax cuts."
Article continues belowFrom just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
CLICK FOR FREE ISSUE
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Sign upHowever, the GOP-led state Senate remains committed to the rate reductions, meaning the upcoming spring legislative session is shaping up to be a tumultuous battle over the state's long-term fiscal path. Here is what is at stake for your 2026 North Carolina paycheck and beyond.
Income tax in North Carolina for 2026
North Carolina's flat income tax rate is 3.99% for 2026, lower than last year's 4.25%. Under the current legislative roadmap, additional cuts are scheduled through 2028, provided the state hits specific revenue benchmarks.
- In 2027, the personal income tax rate is scheduled to drop to 3.49%.
- In 2028, the personal income tax rate is scheduled to drop to 2.99%.
Note: Additionally, the corporate income tax rate is scheduled to hit 0% by 2030.
The NC Office of State and Budget Management (OSBM) recently projected that the General Fund revenue is on track to exceed the $33.042 billion trigger required to authorize the next round of cuts.
Yet, the benefits are not expected to be distributed equally. According to an analysis conducted by the OSBM, higher-income households stand to see the most significant dollar-amount relief in 2027:
Swipe to scroll horizontallyNorth Carolina Income Tax SavingsAnnual Household Income
Estimated 2027 Tax Savings
Over $764,000
$8,095
$764,000 – $314,000
$1,826
$314,000 – $144,000
$769
$144,000 – $78,000
$352
$78,000 – $45,000
$173
$45,000 – $21,000
$65
Under $21,000
$1
North Carolina state income tax: Is your lower rate coming?
Although the North Carolina income tax cuts are codified in law and set to trigger automatically upon meeting revenue targets, the state's fiscal leadership remains sharply divided.
Notably, North Carolina entered 2026 as the only U.S. state without a new budget, due to a stalemate in the General Assembly over income tax cuts and their impact on public service funding. This means the Tarheel State is currently operating on recurring base funds.
And this legislative session, the debate continues, as Gov. Stein is spearheading calls to freeze further future rate reductions, citing a projected revenue gap of to $3.5 billion by the 2027-2028 fiscal year.
"[This gap would cause] the state to have to make painful cuts to critical services like public safety, education, and health care," Stein stated in a March press release. "As our population rapidly grows and the federal government becomes a less reliable partner, I urge this General Assembly to…hit pause on outdated, irresponsible tax triggers."
But legislative leaders argue that the governor's own spending plan — including the $319 million boost to the Medicaid budget — poses fiscal risks as well.
"Senate Republicans remain committed to addressing the state’s most pressing needs in a responsible, fiscally sound manner," Lauren Horsch, spokesperson for state Senate Leader Phil Berger (R-District 26), issued a statement in response to the plan. "Gov. Stein’s proposal…would create a recurring budget deficit and force the state to increase taxes on working families.”
Meanwhile, the OSBM projected a $370 million revenue surplus for the current fiscal year of 2025-2026. While a surplus is usually good news, State House Speaker Destin Hall (R-District 87) noted that the funds are expected to be "entirely consumed" by rising Medicaid costs.
Bottom line: NC income tax trigger 2027
Because certain economic triggers are projected to be met this year, North Carolina lawmakers might cut the income tax rate to 3.49% in 2027. However, the viability of the 2.99% target in 2028 remains in intense debate, particularly with a potential budget deficit on the horizon.
"We are bearing the fruit of an orchard that was planted a long time ago," Gov. Stein noted during a recent education conference. "But today, we risk hollowing out the institutions that have helped to create our success."
The fiscal cliff Stein warns about dominated last February's budget talks, ultimately resulting in a $600 million stopgap for Medicaid and other essentials but leaving broader funding for public education and infrastructure in limbo.
So for North Carolina taxpayers, the road to a 2.99% income tax rate cut might be blocked by a looming $2.8 billion to $3.5 billion deficit reality — or no budget at all. Stay tuned for more updates.
Read More
- 10 Cheapest Places to Live in North Carolina
- North Carolina Tax Guide
- Retirement Taxes: How All 50 States Tax Retirees
Kate SchubelTax WriterKate is a CPA with experience in audit and technology. As a Tax Writer at Kiplinger, Kate believes that tax and finance news should meet people where they are today, across cultural, educational, and disciplinary backgrounds.