Does North Carolina Tax Tips in 2026?
Yes - North Carolina taxes tips. NCDOR: "The New OBBBA Deductions are taken after a taxpayer calculates AGI and therefore do not affect North Carolina taxable income." Tips are taxed at North Carolina's 3.99% flat rate; an NC benefit would require new legislation.
How North Carolina's Tips Tax Treatment Works
NCDOR's answer, verbatim:
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: North Carolina starts from federal adjusted gross income. The tips deduction is figured on Schedule 1-A after AGI, so it never changes the number NC uses. Session Law 2026-31 moved North Carolina's IRC reference date to July 5, 2025, but conformity does not move a deduction above AGI.
Federal Tips Deduction Quick Reference
| Detail | Value |
|---|---|
| IRC Section | §224 (OBBBA) |
| Maximum deduction | $25,000 tips |
| Deduction type | Above-the-line (Schedule 1-A) |
| FICA still applies? | Yes (Social Security 6.2% + Medicare 1.45%) |
| MFS eligible? | No (MFJ or Single/HoH only) |
| Effective dates | Jan 1, 2025 – Dec 31, 2028 |
| North Carolina treatment | Does not conform |
Worked Examples Comparing Federal and North Carolina Treatment
Example 1: Restaurant server with $20,000 in tips (single filer, 12% federal bracket)
Qualified tip income: $20,000
Tips deduction claimed: $20,000 (capped at $25,000)
Estimated federal tax savings: $2,400.00
North Carolina return:
NCDOR says these deductions do not affect North Carolina taxable income, so the full $20,000 stays in NC income: about $798 of NC tax at the 3.99% flat rate.
Example 2: Bartender at the federal cap, $25,000 deducted (single filer, 22% federal bracket)
Qualified tip income: $25,000
Tips deduction claimed: $25,000 (capped at $25,000)
Estimated federal tax savings: $5,500.00
North Carolina return:
The federal deduction saves federal tax only. On the NC return the $25,000 is still income, about $998 of NC tax.
North Carolina Notes
Flat 3.99% rate: tips is taxed like any other wages.
Pending bill: HB 11 ("No Tax on Tips, Overtime, Bonus Pay") has been in the House Finance Committee since March 11, 2025.
Related Tools
- No Tax on Tips Calculator - calculate your federal tips deduction
- North Carolina Tax Guide - full state tax overview
- North Carolina Paycheck Calculator
- Does North Carolina Tax Overtime?
- W-2 Code TP: Tips Reporting Guide
- W-2 Code TT: Overtime Reporting Guide
- All 51 States: Tips & Overtime Tax Map