The short answer
Yes, North Carolina taxes tips in 2026. The federal tips deduction (up to $25,000) lowers your federal tax, but it does not change your North Carolina return. Tips are taxed at the flat 3.99% rate like other wages.
What NCDOR says, word for word
From NCDOR's questions and answers on the impact of federal law:
Q8. Can I deduct the new federal deductions for tips, overtime pay, car loan interest, and the new senior deduction (collectively “New OBBBA Deductions”) on my 2025 North Carolina individual income tax return?
A8. No. The New OBBBA Deductions are taken after a taxpayer calculates AGI and therefore do not affect North Carolina taxable income. The General Assembly must enact legislation to allow taxpayers to reduce AGI for similar adjustments.
Why the deduction never reaches North Carolina
North Carolina's income tax starts from federal adjusted gross income. The OBBBA tips deduction is not part of AGI: it is figured on Schedule 1-A, which starts from AGI, and subtracted on Form 1040 line 13b to reach federal taxable income. North Carolina never uses that later number.
Conformity does not change this. Session Law 2026-31 moved North Carolina's reference to the Internal Revenue Code to July 5, 2025 (from January 1, 2023), but updating the reference date does not move a deduction above AGI.
Worked example: server with $18K tips
A single server in Charlotte earns $42,000 in wages and $18,000 in qualified tips.
Federal return
Federal AGI (wages + tips): $60,000
Standard deduction: -$16,100
Tips deduction (Schedule 1-A, line 13b): -$18,000
Federal taxable income: $25,900
Federal tax saved by the tips deduction: $2,160
North Carolina return
Federal AGI: $60,000 (the tips deduction was never in this number)
North Carolina standard deduction: -$12,750
North Carolina taxable income: $47,250
North Carolina tax at 3.99%: $1,885
The server keeps the $2,160 federal saving. About $718 of the North Carolina tax is on the tips, exactly as if the federal deduction did not exist.
Overtime and senior deductions
NCDOR's answer covers all four new deductions: tips, overtime (up to $12,500 single, $25,000 married filing jointly), car loan interest, and the senior deduction. None of them affects North Carolina taxable income.
Could that change? House Bill 11
House Bill 11, "No Tax on Tips, Overtime, Bonus Pay," was filed on January 29, 2025. The House Commerce committee reported it favorably on March 11, 2025, and it was re-referred to the House Finance Committee the same day, its last recorded action. Until the General Assembly passes something like it, North Carolina has no state deduction for tips or overtime.
For every state's treatment, see the state-by-state tips and overtime tax map or the North Carolina tips tax page.