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28 July 2026

North Carolina law progressively lowers personal income tax rate over several years

On July 7, 2026, North Carolina Governor Josh Stein signed S.B. 257, which progressively lowers the personal income tax rate from 3.99% to 2.99% over seven years. The personal income tax rate may be further reduced in future years if certain revenue triggers are met.

Background

Before S.B. 257, North Carolina law contained a series of conditional tax rate reductions that depended on the state meeting General Fund revenue triggers. (See Tax Alert 2023-1685.)

Starting in 2027, S.B. 257 repeals these previously enacted trigger-based reductions for the 2027-2034 period and replaces them with the following schedule of automatic tax rate cuts.

 

Tax years

Individual income tax rate

2027-2029

3.49%

2030-2032

3.24%

2033-2034

2.99%

After the rate reaches 2.99%, S.B. 257 authorizes up to two additional future rate reductions that may occur between 2035 and 2040 if specified General Fund revenue thresholds are achieved. (North Carolina General Assembly Legislative Fiscal Note for S.B. 257.)

Ernst & Young LLP insights

Employers should monitor for updated withholding guidance and ensure that payroll systems are configured to timely implement future tax rate changes.

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Contact Information

For additional information concerning this Alert, please contact:

Workforce Tax Services - Employment Tax Advisory Services

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor

Document ID: 2026-1630

 

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