What is the North Carolina PTET rate?

North Carolina's PTET rate is 3.99% flat. NCDOR Tax Rate Schedules: 'For Taxable Years after 2025, the North Carolina individual income tax rate is 3.99% (0.0399)' + NCDOR Important Notice on PTE: 'The tax on the Taxed PTE is imposed at the individual income tax rate for the applicable taxable year.'

Is the North Carolina owner credit refundable?

North Carolina's PTET owner credit is non-refundable. Owner DEDUCTS share of Taxed PTE's income on NC return (subtraction mechanic, not a credit) — distinguishes NC from credit-state peers.

Does North Carolina PTET affect composite-return filing?

Stacks. See the composite-vs-PTET page for the full matrix.

North Carolina · NC

North Carolina Pass-Through Entity Tax (PTET)

North Carolina's PTET regime is one of the 37+ state workarounds to the federal SALT cap (IRC §164(b)(6)). The election is annual, statute-pinned below, and interacts with composite filing and §199A QBI in state-specific ways.

Statute: N.C. Gen. Stat. § 105-154.1 (Taxed Partnership election); § 105-131.1A (Taxed S Corporation election)
State DOR portal: https://www.ncdor.gov/taxes-forms/information-tax-professionals/tax-bulletins-directives-and-other-important-notices/important-notices-and-frequently-asked-questions-personal-taxes/important-notice-regarding-north-carolinas-recently-enacted-pass-through-entity-tax
Election deadline: Election made on a timely-filed Form D-403 (partnership) or CD-401S (S corp). Calendar-year Taxed Partnership: Form D-403 due April 15.
Election form: Form D-403 (Partnership Income Tax Return) or CD-401S (S Corporation Tax Return) with Taxed PTE election
Entity-level rate: 3.99% — NCDOR Tax Rate Schedules: 'For Taxable Years after 2025, the North Carolina individual income tax rate is 3.99% (0.0399)' + NCDOR Important Notice on PTE: 'The tax on the Taxed PTE is imposed at the individual income tax rate for the applicable taxable year.'
Eligible entities: s-corp, partnership, llc-as-s, llc-as-partnership
Owner credit: non-refundable — Owner DEDUCTS share of Taxed PTE's income on NC return (subtraction mechanic, not a credit) — distinguishes NC from credit-state peers.
Composite interaction: stacks
§199A QBI base reduction: Yes — Reduces federal flow-through income (Notice 2020-75).
Last verified: 2026-05-12

Source: ncdor.gov/taxes-forms/information-tax-professionals/tax-bulletins-directives-and-other-important-notices/.../important-notice-regarding-north-carolinas-recently-enacted-pass-through-entity-tax + 2025 D-403A instructions. SL 2023-12 made retroactive benefits available. NC uses a SUBTRACTION/DEDUCTION mechanic for owners (not a credit) — significant difference.

IRC §164(b)(6)Notice 2020-75 IRC §199A

Reference computation

For a North Carolina pass-through entity with $500,000 of qualified net income allocated to this state, at a 37% federal marginal bracket, the entity-level PTET and federal-deduction math is:

North Carolina — reference example

QBI allocation·NC rate= Entity-level tax

$500,000×4%=$19,950

N.C. Gen. Stat. § 105-154.1 (Taxed Partnership election); § 105-131.1A (Taxed S Corporation election)

Entity tax·Federal bracket= Federal deduction (gross)

$19,950×37%=$7,382

At a 37% federal bracket, the entity-level deduction saves $7,382 in federal tax. Net of §199A QBI offset (~20% × bracket × entity tax = $1,476), aggregate benefit is approximately $5,905.

IRS Notice 2020-75

Run the picker pre-filled for North Carolina

Election walkthrough

Verify eligibility. North Carolina accepts: s-corp, partnership, llc-as-s, llc-as-partnership.
Check the deadline. Election made on a timely-filed Form D-403 (partnership) or CD-401S (S corp). Calendar-year Taxed Partnership: Form D-403 due April 15. Election is annual.
Compute the entity-level tax. Apply the 3.99% rate to qualified net income.
Pay and file. Use Form D-403 (Partnership Income Tax Return) or CD-401S (S Corporation Tax Return) with Taxed PTE election. Quarterly estimates may be required.
Owners claim the state credit. non-refundable credit on the personal state return.
Verify composite interaction. Composite interaction: stacks. See composite vs PTET.
Run the federal §199A QBI math. PTET reduces the QBI base proportionally; net the federal SALT-arbitrage against the §199A offset.

North Carolina PTET — common questions

Annual deadline reminder

State PTET law revises annually. North Carolina's data was last verified on 2026-05-12. Re-confirm with the state DOR primary source before electing or filing. Last full-site review: 2026-05-12.

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Reference computation

For a North Carolina pass-through entity with $500,000 of qualified net income allocated to this state, at a 37% federal marginal bracket, the entity-level PTET and federal-deduction math is:

Entity tax·Federal bracket= Federal deduction (gross)

$19,950×37%=$7,382

At a 37% federal bracket, the entity-level deduction saves $7,382 in federal tax. Net of §199A QBI offset (~20% × bracket × entity tax = $1,476), aggregate benefit is approximately $5,905.

IRS Notice 2020-75

Election walkthrough

Verify eligibility. North Carolina accepts: s-corp, partnership, llc-as-s, llc-as-partnership.

Check the deadline. Election made on a timely-filed Form D-403 (partnership) or CD-401S (S corp). Calendar-year Taxed Partnership: Form D-403 due April 15. Election is annual.

Compute the entity-level tax. Apply the 3.99% rate to qualified net income.

Pay and file. Use Form D-403 (Partnership Income Tax Return) or CD-401S (S Corporation Tax Return) with Taxed PTE election. Quarterly estimates may be required.

Owners claim the state credit. non-refundable credit on the personal state return.

Verify composite interaction. Composite interaction: stacks. See composite vs PTET.

Run the federal §199A QBI math. PTET reduces the QBI base proportionally; net the federal SALT-arbitrage against the §199A offset.

North Carolina PTET — common questions