If you live or run a business in North Carolina, your state tax bill just went down. Again.

As of January 1, 2025, North Carolina’s individual income tax rate officially dropped from 4.5% to 4.25%—part of a broader multi-year plan that will reduce the rate to 3.99% by 2026.

But how much are you really saving? And more importantly, how can you plan ahead to make the most of these changes?

At Polaris Tax & Accounting, we help individuals and business owners in Asheville, Charlotte, Huntersville, and across the state make sense of tax law changes—and use them to their advantage.

Let’s walk through the new law, who it affects, and what smart taxpayers are doing now to get ahead.

What Changed in 2025?

The tax cut is part of a multi-year income tax reduction plan signed into law as part of the 2021 state budget and updated in 2023. Here’s the breakdown:

Tax Year NC Flat Income Tax Rate
2024 4.5%
2025 4.25%
2026 3.99%
2027+ Potential future reductions based on revenue triggers

📌 Source: NC Department of Revenue – 2025 Tax Rate Changes

This change applies to all individuals, trusts, and estates paying North Carolina income tax.

How Much Will You Save?

Here are a few examples based on taxable income:

Taxable Income 2024 Tax @ 4.5% 2025 Tax @ 4.25% Estimated Savings
$50,000 $2,250 $2,125 $125
$100,000 $4,500 $4,250 $250
$250,000 $11,250 $10,625 $625

If your income increases in 2025, those savings could multiply—especially if you’re married, self-employed, or running an S corporation.

What About Businesses?

👔 S Corporations, Partnerships, and Sole Proprietors

The NC income tax applies to pass-through business income. So if you’re taking distributions or reporting Schedule C income, you’ll benefit from the same rate cut as individual filers.

If you’re not already using strategic tax planning for your business income, now is the time to start.

📌 Schedule a consultation to review your 2025 tax position

🏢 Corporate Income Tax Cuts Too

If your business is a C Corporation, there’s more good news:
North Carolina’s corporate tax rate has dropped from 2.5% to 2.25% in 2025, with a full phase-out by 2030.

“North Carolina continues to move toward eliminating its corporate income tax altogether, making it one of the most business-friendly tax climates in the country.”
— Tax Foundation

Now’s the time to reevaluate your entity structure if you’re still operating under a C Corp—or if your pass-through business is growing rapidly.

📌 Need help choosing the right entity in NC? Schedule a planning session »

Key Takeaways for Individuals

✅ Higher Net Pay

With the same income, you’ll keep more in your pocket—especially when combined with federal withholdings and any additional tax credits.

✅ Opportunity to Adjust Withholding

Smaller state tax liability = chance to adjust your paycheck withholding or quarterly estimated payments.

✅ Revisit Retirement and Investment Strategies

With more disposable income, now’s a great time to:

  • Increase retirement contributions

  • Pay down high-interest debt

  • Reinvest in your business

📌 Check out our blog: Tax Projections vs. Tax Prep – Know the Difference

Key Moves for NC Business Owners

  • Shift income timing: Consider whether to accelerate deductions in 2025 or defer income to future years with lower rates.

  • Reassess S Corp salary/distribution strategy: Every dollar saved in self-employment and state taxes adds up.

  • Leverage proactive tax planning: This isn’t just about filing—it’s about forecasting.

Will Rates Go Even Lower?

That depends.

Future rate cuts are tied to revenue triggers built into the legislation. If the state meets certain economic benchmarks, reductions will continue. If not, they could pause—or reverse.

Bottom line: Plan with what’s certain today, and stay nimble as laws change.

Final Word from Polaris

North Carolina’s tax cuts are good news—but they’re only a benefit if you’re structuring your income correctly.

At Polaris Tax & Accounting, we help clients across Asheville, Charlotte, Lake Norman, and Huntersville:

  • Maximize tax savings

  • Structure their business and retirement plans

  • Avoid overpaying throughout the year

Don’t wait until the end of 2025 to figure this out. Start now—and stay ahead.

👉 Schedule your consultation today