Updated October 5, 2026. Quick answer: Yes. North Carolina starts from federal adjusted gross income and taxes it at a flat rate: “For tax year 2025, the individual income tax rate is 4.25%.” The statute sets the rate at 3.99% after 2025, subject to a revenue trigger.
How North Carolina treats dividends and interest
| Item | What the documents say |
|---|---|
| Treatment | Taxed at a flat rate |
| 2025 rate | 4.25% |
| After 2025 | 3.99%, subject to the rate-reduction trigger in the statute |
| Other states’ municipal bonds | Add “Interest Income from Obligations of States Other than NC”, including “exempt interest dividends received from regulated investment companies” |
| U.S. obligations | Deduct “Interest Income From Obligations of the United States” |
| Statute | G.S. 105-153.7 sets the rate |
A $20,000 example
Dividends and interest of $20,000 add $20,000 x 4.25% = $850 of North Carolina tax for 2025, and $20,000 x 3.99% = $798 at the later rate, when all of it is in federal adjusted gross income.
What changes in 2026
The statute sets the rate at 3.99% for tax years after 2025, down from 4.25% in 2025, subject to its trigger.
Federal rules
The state’s treatment sits on top of the federal one. Qualified dividends and ordinary dividends are sorted out on the Form 1099-DIV, as the site explains in Box 1a and 1b: ordinary versus qualified dividends, and interest is reported as covered in 1099-INT Box 1. The IRS explains the federal side in Topic no. 403, Interest Received and Topic no. 404, Dividends.
Related: whether North Carolina taxes capital gains, whether North Carolina taxes pensions, how North Carolina taxes retirement income, dividends and interest tax by state, and how tax-exempt interest is reported.
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Answer againSources
- 2025 Form D-400 Individual Income Tax Instructions (North Carolina Department of Revenue): https://www.ncdor.gov/2025-d-401-individual-income-tax-instructions/open
- N.C.G.S. 105-153.7 Individual income tax imposed (North Carolina General Assembly): https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_105/GS_105-153.7.html
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.