North Carolina's hospitality and tourism industry — from Asheville's restaurant scene to the Outer Banks and Charlotte's convention economy — employs a large tipped workforce. In 2026, those workers get meaningful federal relief through the One Big Beautiful Bill Act (OBBBA), which created a deduction of up to $25,000 on qualifying tip income at the federal level. But unlike Nevada, Texas, or Tennessee, North Carolina is not a no-income-tax state. North Carolina applies a flat 3.99% state income tax rate for 2026, and — as of this writing — has not enacted its own state-level exemption for tip income.
This guide explains exactly how the federal OBBBA tips deduction works for North Carolina filers, the state's current flat tax rate and its scheduled future reductions, the status of a pending state bill (House Bill 11) that would create a state-level tips exemption, and how much North Carolina tipped workers actually keep after both federal and state tax — with three worked dollar-amount examples.
The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, created a new above-the-line federal income tax deduction for tip income, effective for tax years 2025 through 2028. Key rules for 2026:
Yes. North Carolina taxes tip income the same way it taxes wages — as ordinary income subject to the state's flat income tax rate. North Carolina's income tax calculation starts from federal AGI, but the state does not currently provide its own tips-specific deduction to mirror the federal OBBBA benefit. That means the OBBBA reduces your federal taxable income, but your North Carolina taxable income is calculated largely independent of that federal tips deduction (North Carolina has its own decoupling provisions for certain federal deductions — always check the current NCDOR guidance for the specific tax year, as conformity rules can change).
A bill, North Carolina House Bill 11 ("No Tax on Tips, Overtime, Bonus Pay"), has been introduced in the General Assembly and would create deductions for tip income, overtime pay, and the first $2,500 of bonus pay at the state level, closely mirroring the federal OBBBA structure. As of 2026, HB 11 had advanced through the House Commerce Committee but had not been enacted into law. North Carolina tipped workers should not assume a state-level tips deduction applies unless and until this bill — or similar legislation — is signed into law.
North Carolina has been phasing down its flat individual income tax rate for several years under Session Law 2023-134. The schedule has been:
Additional rate reductions may apply for tax years beginning with 2027 and later, contingent on the state meeting certain revenue-trigger targets set by the legislature. North Carolina's flat rate applies uniformly to wages, tips, salaries, and most other ordinary income — there is no separate lower rate for tip income specifically.
Scenario: Single filer, North Carolina resident, $25,000 in tip income + $12,000 in wages = $37,000 gross income.
| Step | Calculation | Amount |
|---|---|---|
| Gross Income | $25,000 tips + $12,000 wages | $37,000 |
| OBBBA Tips Deduction (federal only) | Full $25,000 (under $150k phase-out) | −$25,000 |
| Federal AGI | $37,000 − $25,000 | $12,000 |
| Federal Standard Deduction (single, 2026) | Approximate figure | −$15,750 |
| Federal Taxable Income | $12,000 − $15,750 (floored at $0) | $0 |
| Federal Income Tax | No taxable income remaining | $0 |
| FICA (7.65% × $37,000) | Social Security + Medicare | ~$2,831 |
| NC State Tax | $37,000 taxable × 3.99% (tips deduction doesn't flow through to NC absent HB 11) | ~$1,477 |
| Total Tax | ~$4,308 |
NC taxable income shown is simplified before the state's own standard deduction, which further reduces the actual NC liability. Always verify with NCDOR or a tax professional for your exact NC standard deduction and any adjustments.
Scenario: Single filer, North Carolina resident, $35,000 in tip income + $10,000 in wages = $45,000 gross income.
| Step | Calculation | Amount |
|---|---|---|
| Gross Income | $35,000 tips + $10,000 wages | $45,000 |
| OBBBA Tips Deduction (federal only) | Full $25,000 (under $150k phase-out) | −$25,000 |
| Federal AGI | $45,000 − $25,000 | $20,000 |
| Federal Standard Deduction (single, 2026) | Approximate figure | −$15,750 |
| Federal Taxable Income | $20,000 − $15,750 | $4,250 |
| Federal Income Tax | 10% × $4,250 | ~$425 |
| FICA (7.65% × $45,000) | Social Security + Medicare | ~$3,443 |
| NC State Tax | $45,000 × 3.99% (before NC's own standard deduction) | ~$1,796 |
| Total Tax | ~$5,664 |
Figures are rounded, illustrative estimates and do not include North Carolina's own state standard deduction, which would reduce actual NC liability below the figure shown. Verify exact figures via NCDOR.
Scenario: Single filer, North Carolina resident, $60,000 in tip income + $15,000 in wages = $75,000 gross income.
| Step | Calculation | Amount |
|---|---|---|
| Gross Income | $60,000 tips + $15,000 wages | $75,000 |
| OBBBA Tips Deduction (federal only) | Full $25,000 (under $150k phase-out) | −$25,000 |
| Federal AGI | $75,000 − $25,000 | $50,000 |
| Federal Standard Deduction (single, 2026) | Approximate figure | −$15,750 |
| Federal Taxable Income | $50,000 − $15,750 | $34,250 |
| Federal Income Tax | 10% × $11,925 + 12% × $22,325 | ~$3,872 |
| FICA (7.65% × $75,000) | Social Security + Medicare | ~$5,738 |
| NC State Tax | $75,000 × 3.99% (before NC's own standard deduction) | ~$2,993 |
| Total Tax | ~$12,603 |
Figures are rounded, illustrative estimates. Actual NC liability would be lower once North Carolina's own standard deduction is applied. Always confirm with a tax professional or NCDOR.
NC House Bill 11, "No Tax on Tips, Overtime, Bonus Pay," would create three new North Carolina income tax deductions: one for tips required to be reported to an employer, one for overtime compensation earned under the FLSA, and one for the first $2,500 of annual bonus pay. If enacted, it would let North Carolina tipped workers deduct qualifying tip income from their state taxable income, similar to how the federal OBBBA deduction works. As of 2026, HB 11 has advanced through committee review in the House but has not passed into law. North Carolina tipped workers should track the bill's status via the North Carolina General Assembly's website and should not assume a state deduction applies until it is signed into law.
The OBBBA tips deduction phases out for higher-income workers:
Most North Carolina tipped workers — servers, bartenders, salon staff, hotel employees — earn well below these thresholds and can claim the full $25,000 federal deduction. High-earning tipped professionals should consult a tax advisor to calculate their exact phase-out amount, keeping in mind this only affects the federal deduction, not the flat NC state rate.
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