North Carolina and South Carolina do not have a tax reciprocity agreement. If you live in one state and work in the other, you’ll owe income tax to both states and file two state returns each year. A credit mechanism keeps you from actually paying tax twice on the same wages, but the paperwork is real, and depending on which way you commute, you may still owe extra to your home state because the two states tax income at different rates.
The Credit That Prevents Double Taxation
Both states have a legitimate claim on your wages when you cross the border to work. The work state taxes income earned inside its borders. Your home state taxes all your income no matter where you earned it. The safety valve is the credit for taxes paid to another state, which both North Carolina and South Carolina offer their residents.
The credit runs one direction. Your work state, where you’re the nonresident, taxes first. You then file a resident return in your home state, report everything you earned, and claim a credit for the tax you already paid to the work state. North Carolina’s credit is at G.S. § 105-153.9.1North Carolina General Assembly. North Carolina Code 105 – Section 105-153.9 South Carolina’s is at § 12-6-3400.2South Carolina Legislature. South Carolina Code 12-6-3400 – Credit for Income Tax Paid by South Carolina Resident to Another State
There’s a ceiling. You can’t claim more than your home state would have charged on that same income. Under South Carolina’s statute, the credit is the lesser of the tax actually paid to the other state or the portion of your South Carolina tax attributable to the income taxed elsewhere.2South Carolina Legislature. South Carolina Code 12-6-3400 – Credit for Income Tax Paid by South Carolina Resident to Another State North Carolina uses a similar limit. That cap is where the rate difference between the two states starts to matter.
Which Direction You Commute Changes the Math
North Carolina imposes a flat individual income tax rate of 3.99% for tax years beginning after 2025.3North Carolina Department of Revenue. Tax Rate Schedules South Carolina uses a graduated structure with a top rate around 6.2% to 6.3% on income above roughly $18,000, with brackets that adjust annually. That gap produces very different outcomes depending on which state you live in.
A South Carolina resident working in North Carolina pays NC’s 3.99% on those wages, then files an SC return and claims a credit for that amount. Because SC’s top rate is higher, the credit won’t fully offset the SC tax. You’ll owe the difference to South Carolina. In effect, you end up paying SC’s rate on your wages, just split across two returns.
A North Carolina resident working in South Carolina pays SC’s higher rate on those wages and claims that amount as a credit on the NC return. The credit can’t exceed what NC would have charged, so the extra SC tax doesn’t produce a refund from NC. You pay SC’s rate and owe nothing further to North Carolina on those wages. Either way, the total burden lands at the higher of the two states’ rates.
Filing the Two Returns
Always prepare the nonresident return first. The tax you calculate there feeds the credit you claim on your resident return.
Nonresident Return in the Work State
If you work in North Carolina, file Form D-400 with Schedule PN, the Part-Year Resident and Nonresident Schedule. Schedule PN calculates what percentage of your total income is subject to North Carolina tax based on your NC-source earnings, and both pages of the schedule must be attached to the D-400.4North Carolina Department of Revenue. D-400 Schedule PN – Part-Year Resident and Nonresident Schedule
If you work in South Carolina, file Form SC1040 with Schedule NR and attach a complete copy of your federal return.5South Carolina Department of Revenue. Schedule NR – Nonresident Schedule
Resident Return in Your Home State
On the resident return you report all your income from everywhere. Then you claim the credit for taxes paid to the other state. North Carolina residents claim the out-of-state credit on Form D-400. South Carolina residents must attach a copy of the return filed with the other state when claiming the credit.2South Carolina Legislature. South Carolina Code 12-6-3400 – Credit for Income Tax Paid by South Carolina Resident to Another State
When You Have to File as a Nonresident
North Carolina requires nonresidents to file if they received NC-source income from a business, trade, profession, or occupation carried on in the state and their total gross income from all sources meets or exceeds the standard filing threshold for their filing status. For 2025, those thresholds are $12,750 for single filers, $19,125 for head of household, and $25,500 for married filing jointly.6North Carolina Department of Revenue. Individual Income Filing Requirements The threshold is total income everywhere, not just NC income. Earn $50,000 total with only $5,000 sourced to NC, and you still have to file, because your total crosses the threshold.
South Carolina requires nonresidents to file if they had South Carolina gross income or had South Carolina income tax withheld from their wages.7South Carolina Department of Revenue. 2025 SC1040 Individual Income Tax Form and Instructions There’s no practical dollar-amount safe harbor for wage earners. If SC tax was withheld, you file.
Check Your Employer’s Withholding
Without a reciprocity agreement, employers generally must withhold state income tax for the state where you physically perform the work. Live in South Carolina and commute to an office in North Carolina, and your employer should be withholding NC tax from your paycheck. Some employers also withhold for the home state depending on that state’s rules, but many withhold only for the work state and leave the rest to you at filing time.
If withholding looks wrong, say your employer is withholding only for your home state and ignoring the work state, raise it with payroll. Getting this wrong means a large balance due on the nonresident return and possibly underpayment penalties.
Remote and Hybrid Work
Wage income is generally taxed where you physically perform the work. Live in South Carolina, employer based in North Carolina, but you work from your kitchen table in SC every day: those wages are South Carolina-source income, not North Carolina-source. You file only the SC resident return.
Split schedules are where it gets messy. Work from home three days a week and commute to the NC office two days a week, and you generally allocate wages between the two states based on days worked in each location. Some payroll systems track work location; many don’t, which leaves the documentation to you.
A handful of states apply a “convenience of the employer” rule that taxes wages based on the employer’s office location rather than where the employee actually sits. Neither North Carolina nor South Carolina uses that doctrine, so physical presence governs.
Military Spouses Are an Exception
The Military Spouses Residency Relief Act creates a federal exception. If you’re a military spouse living in North Carolina or South Carolina solely because your service member is stationed there, you keep your tax residency in your home state. Under MSRRA, you aren’t taxed by the state where you’re physically present if you’re there only because of military orders.8IRS. Notice 2010-30 – Military Spouses Residency Relief Act
For earned income, a qualifying military spouse can elect to be taxed by the service member’s state of legal residence, the spouse’s own state of legal residence, or the duty station state. If both spouses are domiciled in Texas (no income tax) but stationed at Fort Liberty in North Carolina, the NC wages can be treated as Texas income, meaning no state income tax at all. File an exemption form with your employer so they stop withholding for the duty station state.
Moving Between the Two States Mid-Year
Relocate from one Carolina to the other during the year and you’re a part-year resident of each state. Instead of one nonresident and one resident return, you typically file a part-year return in each state. North Carolina’s Schedule PN and South Carolina’s Schedule NR both handle part-year residents.
Each state taxes the income you earned while you were its resident, plus any income sourced to that state during the portion of the year you lived elsewhere. Allocation for part-year residents generally follows the calendar: wages from the months you lived in North Carolina belong to North Carolina, and wages from the months you lived in South Carolina belong to South Carolina. Investment income, which isn’t tied to a location, is generally assigned to whichever state you lived in when you received it.
The credit for taxes paid to another state still applies in a part-year situation to prevent overlap, but the math gets more involved. If you moved mid-year, tax software that handles multi-state returns, or a professional familiar with both states, is worth the cost. Getting the allocation wrong means overpaying one state and chasing the refund later.