Interest Overview
The North Carolina General Statutes provide both civil and criminal penalties for failure to comply with the income tax laws. For additional information, see G.S. § 105-236. In addition to any applicable penalty, all assessments of taxes or additional taxes bear interest at the applicable rate from the due date until date of payment.
The law requires the Secretary of Revenue to establish an interest rate on or before June 1 for the following six-month period beginning on July 1, and on or before December 1 for the following six-month period beginning on January 1. The rate set by the Secretary may not be less than 5% per year or greater than 16% per year. For more information, see Interest Rates.
Interest accrues on the underpayment of tax from the due date of the payment until the tax is paid.
Interest accrues on an overpayment of tax from the time set in G.S. 105-241.21(c) for each tax type listed until the refund is paid. For example, for franchise, income and gross premiums, interest on an overpayment beings 45 days after the latest of (1) the date the final return was filed, (2) the date the final return was due to be filed, without regard to extensions, or (3) the date of the overpayment.
Interest also accrues on an underpayment of estimated income tax. Interest is computed separately for each required installment; therefore, a taxpayer may owe interest on an earlier installment even if that taxpayer later paid enough tax with a later installment to make up for the underpayment. A taxpayer that did not pay enough tax by the due date of each required installment may owe interest even if a refund is due when the return is filed.
A taxpayer can use Form D-422 (individuals), Form CD-429B (C corporations), or Form NC-429 PTE (Taxed Partnerships and Taxed S Corporations) to determine if the taxpayer owes interest for underpayment estimated income tax and amount of interest owed.
Interest on the underpayment of estimated income tax is computed on Form D-422, Underpayment of Estimated Income Tax by Individuals. If interest on the underpayment is applicable, add the amount of interest to the tax due and include the full payment with the return.
As a general rule, the Secretary of Revenue cannot waive or reduce interest. The only exceptions are the following:
- Hurricane Helene - The Disaster Recovery Act of 2024 allows eligible taxpayers interest relief on specific taxes. The Department published an Important Notice that identifies the taxpayers and returns eligible for relief.
- Bankruptcy - Interest may be waived or reduced if it has accrued on taxes imposed prior to or during a period for which the taxpayer has declared bankruptcy under Chapter 7 or Chapter 13 of Title 11 of the United States Code.
- COVID-19 - The COVID-19 Recovery Act allowed individual income, corporate income, and franchise taxpayers interest relief on certain returns or payments due April 15, 2020, through July 15, 2020. The Department published an Important Notice that identifies the taxpayers and returns eligible for relief.
If you are eligible for interest relief, you should complete and submit Form NC-5502, Special Penalty and Interest Waiver.
Review current and past interest rates for refunds and assessments.