Work in Virginia, Live in North Carolina: Who Taxes Your Wages

Reciprocity

Do Virginia and North Carolina have a tax reciprocity agreement?

No. Virginia Tax lists its reciprocity partners as Kentucky, Maryland, the District of Columbia, West Virginia and Pennsylvania. North Carolina is not among them, so a North Carolina resident who earns wages in Virginia cannot use the Form VA-4 exemption to have that pay taxed only at home.

The Form 763 instructions draw the line clearly. The filing exception covers nonresidents who earn wages in Virginia and pay tax on them to the District of Columbia, Kentucky, Maryland, Pennsylvania or West Virginia. Everyone else with Virginia income at or above the threshold files. Virginia defines income from Virginia sources as income from labor performed, business conducted or property held in Virginia, and wages for services performed in Virginia are its first example.

North Carolina, in turn, has you report all income from inside and outside the state on your resident return. Both states therefore reach the same paycheck, and the overlap is settled by a credit on the North Carolina return, not by reciprocity.

Returns

Which returns does a North Carolina resident working in Virginia file?

Three, prepared in this order:

• Federal Form 1040. Virginia adjusted gross income starts from your federal adjusted gross income.
• Virginia Form 763, the nonresident return. For tax year 2025 it had to be postmarked by May 1, 2026.
• North Carolina Form D-400 with Form D-400TC, reporting all income and claiming the credit. For most taxpayers the NC due date is April 15.

North Carolina's deadline comes first, yet the Virginia return has to be finished first, because the NC credit depends on the tax you actually owe Virginia. NCDOR requires a copy of the return filed with the other state, plus proof of payment, and says the credit cannot be claimed on the basis of a withholding statement alone.

Virginia's filing threshold turns on Virginia adjusted gross income. For tax year 2025, a single filer with VAGI below $11,950 did not have to file. If Virginia tax was withheld, though, you must file to get it back even when you are under the threshold.

The credit

How does North Carolina's credit for tax paid to Virginia work?

North Carolina grants it, not Virginia. Virginia generally does not let nonresident filers claim credit for income tax paid to another state; the exceptions are residents of Arizona, California, the District of Columbia and Oregon. Your Form 763 shows the full Virginia tax.

On Form D-400TC, Part 1, the NC credit is the smaller of:

• the net tax paid to Virginia on income North Carolina also taxes, or
• your NC tax multiplied by the share of your NC income that Virginia taxed.

Net tax paid means the tax you actually owe Virginia, not what was withheld. NCDOR flags a common mistake: entering the total Virginia withholding on line 6. If Virginia later refunds tax you used for the credit, the matching part of the credit becomes NC tax due, with penalties and interest.

Rates decide who collects what. Virginia charges 2% on the first $3,000 of taxable income and 5.75% above $17,000, so the tax on a $90,000 taxable income is $720 plus 5.75% of the excess. North Carolina's flat rate is 4.25% for 2025 and 3.99% for tax years after 2025, and NCDOR notes further changes may apply from 2027 under rate reduction triggers.

Payroll

What should my Virginia employer withhold?

Virginia income tax. The VA-4 exemption is meant for residents of reciprocity states; a North Carolina resident completes the VA-4 for allowances only.

North Carolina withholding usually is not stacked on top. NCDOR's 2026 employer instructions say an NC resident is subject to NC withholding on all wages, except that NC withholding is not required on wages for services performed in another state if that state requires the employer to withhold. The same paragraph adds that this does not relieve you of filing an NC return and paying any balance due after the credit.

A balance can happen. The credit is capped at the NC tax on the Virginia share of your income, so NC tax on other income, such as a spouse's North Carolina wages or investment income, is still owed. If Virginia withholding is all that comes out of your pay, plan for that NC balance. North Carolina requires estimated payments, filed with Form NC-40, when the tax due after NC withholding and credits is $1,000 or more.

Remote work

What if I work from home in North Carolina some days?

Home days fall outside Virginia's tax. Virginia-source wages are wages for services performed in Virginia, so pay for days worked at a North Carolina desk is not Virginia income, even when your employer is based in Virginia. Only North Carolina taxes those days.

North Carolina applies the same idea to payroll: for NC withholding, the location of the services is the physical location where you perform them. A hybrid schedule can therefore mean Virginia withholding on office days and NC withholding on home days.

On Form 763, Virginia divides your Virginia-source income by income from all sources to get a nonresident allocation percentage, then applies it to your Virginia taxable income. Keep a record of office days and home days. A payroll work-location code that was never updated after a schedule change is an easy way to end up with tax withheld for the wrong state.

Worked example: North Carolina resident earning $60,000 in Virginia

Single filer, tax year 2026, all wages earned in Virginia, standard deductions, no other income. Virginia rates from Va. Code 58.1-320 and the Form 763 rate schedule. Arithmetic only.

Residency trap

Could Virginia treat me as a resident too?

It can, if you spend enough time there. Virginia calls someone an actual resident if they are physically present in Virginia, or maintain a place of abode there, for more than 183 days in the year, and the days do not have to be consecutive. A North Carolina resident who rents a weekday apartment near a Virginia job can cross that line.

An actual resident may have to file resident returns in both states, and a Virginia resident return includes income from all sources. Virginia's instructions say that in this situation you claim a credit on the return filed in your state of legal domicile for taxes paid to Virginia. For a North Carolina domiciliary, D-400TC still does the work, but Virginia would then tax more than your Virginia wages.

Moving

What if I move between North Carolina and Virginia during the year?

Each state treats you as a part-year resident. In North Carolina you complete Form D-400 Schedule PN, which works out the percentage of income subject to NC tax, and a part-year resident must include all income received while an NC resident, even income from another state.

Virginia offers choices. A part-year resident usually files Form 760PY and prorates exemptions and the standard deduction. If you lived in Virginia 183 days or less, you can file as a nonresident on Form 763, which allows the full exemption and standard deduction. Someone who commuted to Virginia from North Carolina and then moved to Virginia may need both a 760PY and a 763 for the same year.

Married couples

How do married couples file when only one spouse works in Virginia?

On the Virginia side, separately. A joint Form 763 is open only when both spouses have Virginia source income. When both spouses are nonresidents with income but only one has income from Virginia sources, the 763 instructions require a separate return under Filing Status 4. The Virginia earner files alone, and a spouse may claim only the exemptions and deductions that could have been claimed on a separate federal return.

On the North Carolina side, the math shifts if you file jointly. The D-400TC fraction compares the income Virginia taxed with total income from all sources on the NC return, so the other spouse's North Carolina wages shrink the Virginia share and lower the credit cap. Expect NC tax on the non-Virginia earnings; the credit only covers the part of NC tax tied to the Virginia wages.

Fixes

What if the wrong state withheld tax?

If Virginia withheld on days you worked in North Carolina, the Form 763 allocation removes those wages and the excess Virginia withholding is refunded. A return is required to get it back.

If North Carolina withheld on Virginia workdays, you are not out of pocket for long: you report all wages on the D-400, take the D-400TC credit, and NC withholding above your net NC tax comes back as a refund. Ask payroll to correct your work location so the error stops.

If the NC credit looks smaller than expected, check the cap: NC tax times the Virginia share of your income. Income Virginia did not tax lowers that share. North Carolina also gives no credit for income taxes paid to a city or county, only to another state or country.

This is general information, not tax advice.