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 federal income tax deduction for tip income (claimed on Schedule 1-A), 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. HB 11 was reported favorably by the House Commerce Committee and re-referred to the House Finance Committee on March 11, 2025, with no later action recorded on ncleg.gov as of an archived copy dated June 16, 2026; it is not law, and the North Carolina Department of Revenue's FAQ dated September 11, 2026 confirms there is no state deduction for tips, overtime or the other federal OBBBA deductions. 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 |
| Federal AGI | Wages + tips (the Schedule 1-A tips deduction is not subtracted in arriving at AGI) | $37,000 |
| Federal Standard Deduction (single, 2026) | Approximate figure | −$16,100 |
| OBBBA Tips Deduction (federal only) (Schedule 1-A, Form 1040 line 13b) | Full $25,000 (under $150k phase-out) | −$25,000 |
| Federal Taxable Income | $37,000 − $16,100 − $25,000 (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 − $12,750 NC standard deduction) × 3.99% (tips deduction doesn't flow through to NC absent HB 11) | ~$968 |
| Total Tax | ~$3,799 |
NC tax uses the $12,750 NC standard deduction (single, 2026). Always verify with NCDOR or a tax professional for 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 |
| Federal AGI | Wages + tips (the Schedule 1-A tips deduction is not subtracted in arriving at AGI) | $45,000 |
| Federal Standard Deduction (single, 2026) | Approximate figure | −$16,100 |
| OBBBA Tips Deduction (federal only) (Schedule 1-A, Form 1040 line 13b) | Full $25,000 (under $150k phase-out) | −$25,000 |
| Federal Taxable Income | $45,000 − $16,100 − $25,000 | $3,900 |
| Federal Income Tax | 10% × $3,900 | ~$390 |
| FICA (7.65% × $45,000) | Social Security + Medicare | ~$3,443 |
| NC State Tax | ($45,000 − $12,750) × 3.99% | ~$1,287 |
| Total Tax | ~$5,120 |
Figures are rounded, illustrative estimates; NC tax uses the $12,750 NC standard deduction. 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 |
| Federal AGI | Wages + tips (the Schedule 1-A tips deduction is not subtracted in arriving at AGI) | $75,000 |
| Federal Standard Deduction (single, 2026) | Approximate figure | −$16,100 |
| OBBBA Tips Deduction (federal only) (Schedule 1-A, Form 1040 line 13b) | Full $25,000 (under $150k phase-out) | −$25,000 |
| Federal Taxable Income | $75,000 − $16,100 − $25,000 | $33,900 |
| Federal Income Tax | 10% × $12,400 + 12% × $21,500 | ~$3,820 |
| FICA (7.65% × $75,000) | Social Security + Medicare | ~$5,738 |
| NC State Tax | ($75,000 − $12,750) × 3.99% | ~$2,484 |
| Total Tax | ~$12,042 |
Figures are rounded, illustrative estimates; NC tax uses the $12,750 NC standard deduction. 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. HB 11 was reported favorably by the House Commerce Committee and re-referred to the House Finance Committee on March 11, 2025, with no later action recorded on ncleg.gov as of an archived copy dated June 16, 2026; it is not law, and the North Carolina Department of Revenue's FAQ dated September 11, 2026 confirms there is no state deduction for tips, overtime or the other federal OBBBA deductions. 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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