North Carolina corporate income tax phaseout: what it means for Charlotte LLCs and S corps
Takeaways
- North Carolina’s corporate income tax rate is 2% for tax years beginning in 2026, down from 2.25% in 2025 and 2.5% from 2019 through 2024.
- Session Law 2021-180, signed by Gov. Roy Cooper on November 18, 2021, cuts the corporate rate to 1% in 2028 and 0% for tax years beginning after 2029.
- S corporations and LLCs taxed as partnerships do not pay North Carolina corporate income tax; their owners pay the 3.99% personal rate on 2026 business profits.
- Session Law 2026-41, the budget Gov. Josh Stein signed on July 7, 2026, lowers North Carolina’s personal income tax rate to 3.49% for 2027 through 2029.
- North Carolina’s franchise tax has no phaseout, so C and S corporations still owe at least $200 a year based on net worth apportioned to the state.
This guide is for Charlotte owners of LLCs, S corporations and C corporations who keep hearing that North Carolina is ending its corporate income tax. The North Carolina corporate income tax is a tax on the state net income of C corporations doing business in North Carolina, and G.S. 105-130.3 says outright that an S corporation is not subject to it. The short answer: the phaseout lowers taxes for C corporations (including LLCs that elected corporate treatment), while most LLC and S corporation owners keep paying personal income tax on business profits, at a rate the 2026 state budget is also cutting.
What is the North Carolina corporate income tax rate in 2026?
The North Carolina corporate income tax rate is 2% for tax years beginning in 2026, according to the North Carolina Department of Revenue’s corporate rate table. NCDOR lists 2.25% for 2025, 2.5% for 2019 through 2024, 3% for 2017 and 2018, and 4% for 2016. A January 26, 2022 General Assembly legislative analysis notes that North Carolina began cutting the rate in 2014, when it fell from 6.9% to 6%.
The remaining steps are written into G.S. 105-130.3 by Session Law 2021-180. The statute lists only the years when the rate changes, so 2027 stays at 2% and 2029 stays at 1%.
| Tax years beginning in | Corporate income tax rate | Source |
|---|---|---|
| 2019 through 2024 | 2.5% | NCDOR rate table |
| 2025 | 2.25% | G.S. 105-130.3 |
| 2026 and 2027 | 2% | G.S. 105-130.3 |
| 2028 and 2029 | 1% | G.S. 105-130.3 |
| 2030 and later | 0% | G.S. 105-130.3 |
Session Law 2021-180 was Senate Bill 105, the 2021 state budget, signed by Gov. Roy Cooper on November 18, 2021, according to an NCDOR notice. Neither 2026 tax law (Session Law 2026-31 or the Session Law 2026-41 budget) changed the corporate schedule. Senate Bill 943, the “Kids Over Corporations Act,” would repeal the phaseout and set a 5% rate starting with tax years beginning in 2026, but its last recorded action on the General Assembly’s bill page, as of November 13, 2026, is an April 30, 2026 referral to the Senate Rules and Operations committee.
Who pays the North Carolina corporate income tax?
The North Carolina corporate income tax is paid by C corporations doing business in North Carolina, including an LLC treated as a C corporation for federal tax purposes; NCDOR’s filing requirements say such an LLC reports its North Carolina income at the entity level. A multistate corporation apportions income to North Carolina using only the sales factor for tax years beginning on or after January 1, 2018. A C corporation that expects to owe $500 or more must pay estimated tax on Form CD-429 by the 15th day of the fourth, sixth, ninth and 12th months of its tax year.
Calendar-year C corporations file Form CD-405 by April 15, the 15th day of the fourth month after year-end. The federal government taxes the same profit as well: the IRS’s 2025 Form 1120 instructions tell a corporation to multiply taxable income by 21%. At 2%, North Carolina’s rate is a small slice next to the federal 21%, and for tax years beginning in 2030 the state slice is zero.
Why don’t most Charlotte LLCs and S corps pay it?
Most Charlotte LLCs and S corps don’t pay North Carolina corporate income tax because their profits pass through to the owners. G.S. 105-130.3 exempts S corporations, and NCDOR treats an LLC that is a partnership or disregarded entity for federal purposes as a flow-through, so owners report their shares on personal returns, where North Carolina taxable income starts with federal adjusted gross income under G.S. 105-153.4. The personal rate is a flat 3.99% for 2026, after 4.25% for 2025, according to NCDOR’s tax rate schedules.
The 2026 budget rewrote the personal rate schedule. Session Law 2026-41, Senate Bill 257, became law when Gov. Josh Stein signed it at 10:30 a.m. on July 7, 2026, and WSOC reported the cut from 3.99% to 3.49%. The enacted budget sets these rates:
| Tax years beginning in | Personal income tax rate | Law |
|---|---|---|
| 2025 | 4.25% | Session Law 2023-134 |
| 2026 | 3.99% | Session Law 2026-41 |
| 2027 through 2029 | 3.49% | Session Law 2026-41 |
| 2030 through 2032 | 3.24% | Session Law 2026-41 |
| 2033 and later | 2.99% | Session Law 2026-41 |
Starting with tax years beginning in 2035, Session Law 2026-41 allows up to two more quarter-point cuts, to a floor of 2.49%, after any fiscal year from 2033-2034 through 2038-2039 in which General Fund revenue beats its trigger. NCDOR’s rate schedule page still described the older Session Law 2023-134 schedule when checked on November 13, 2026, so plan from the session law text.
The entity-level tax option
North Carolina also lets an S corporation or partnership pay the personal income tax at the entity level. NCDOR’s pass-through entity tax notice says the election, available for tax years beginning on or after January 1, 2022, taxes the entity at the individual rate and lets each owner deduct the owner’s share of the entity’s income on the North Carolina return; NCDOR ties the law to the federal cap on state and local tax deductions. Under G.S. 105-131.1A, an S corporation makes the election on a timely filed return and cannot make or revoke it after filing.
Does the phaseout end the franchise tax?
The corporate income tax phaseout does not end North Carolina’s franchise tax, a separate annual tax on C and S corporations measured by apportioned net worth. NCDOR’s rate page sets the C corporation franchise tax at $1.50 per $1,000 of tax base, with a $200 minimum and a $500 cap on the first $1 million; an S corporation pays $200 on the first $1 million and $1.50 per $1,000 above it. An LLC taxed as a partnership pays neither the corporate income tax nor the franchise tax.
At current rates, a C corporation with $3 million of apportioned net worth owes $3,500 in franchise tax, and that figure does not shrink when the income tax rate reaches 0%. Session Law 2026-31, signed July 2, 2026, changed franchise tax rules for affiliated-company debt and scheduled no franchise tax cut.
When should a Charlotte owner revisit entity choice?
A Charlotte owner should revisit entity choice before the North Carolina rate reaches 0% for tax years beginning after 2029, but the state corporate rate is the smallest number in the math. A C corporation’s profit is taxed at the federal 21% rate first; when the company pays that profit out as a dividend, the dividend lands in the owner’s federal adjusted gross income, North Carolina’s starting point for personal tax. A pass-through owner pays personal income tax once: 3.99% in North Carolina for 2026, plus the federal rate.
Our read: the phaseout helps companies that already are C corporations far more than it argues for switching. An S corporation that distributes most of its profit would trade one layer of personal tax for the federal 21% corporate tax plus personal tax on dividends, and a 2-point state cut is small next to that 21% layer. Owners who plan to keep most profits inside the company for years face a different comparison.
Timing carries a price for C corporations, too. Session Law 2026-31 requires an 80% add-back of federally expensed domestic research costs, recovered over four later years, and EY notes that with the rate falling, the add-back and the later deductions may be taxed at different rates. In an NCDOR example, a corporation adds back $80,000 for 2025 at 2.25% and deducts $20,000 a year from 2026 through 2029, at 2% and then 1%; by our math, that is $1,800 of tax on the add-back against $1,200 of later savings.
Questions for your CPA
The questions below belong in a CPA meeting before any change in entity type. This guide is general information, not tax advice; check your situation with a CPA.
- How much profit do we plan to keep in the company each year through 2030, and how does that change the comparison between C corporation and pass-through treatment?
- Would the North Carolina pass-through entity tax election lower our owners’ combined federal and state tax for 2026?
- If we are a C corporation, should we time income or deductions around the drop from 2% to 1% in 2028 and to 0% after 2029?
- Did we expense domestic research costs under section 174A, and what will the 80% North Carolina add-back cost us at falling rates?
- What will our franchise tax be each year at our current apportioned net worth, since the income tax phaseout leaves the franchise tax in place?
Good to know
The following dates and checks apply to the 2027 filing season, as of November 13, 2026.
- NCDOR says it will publish 2026 North Carolina tax returns and instructions in January 2027.
- Calendar-year 2026 C corporation returns on Form CD-405 and S corporation returns on Form CD-401S are due April 15, 2027.
- The personal income tax rate drops from 3.99% to 3.49% for tax years beginning January 1, 2027, under Session Law 2026-41.
- Senate Bill 943, which would set a 5% corporate rate, remained in the Senate Rules and Operations committee on November 13, 2026.
- Rates and bill statuses in this guide were checked on ncleg.gov and ncdor.gov on November 13, 2026.
Last updated November 13, 2026.
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