NC
Does North Carolina tax tips and overtime?
The federal deduction and the North Carolina deduction are separate questions. Here is where North Carolina actually lands, and why.
How North Carolina builds its tax base
North Carolina starts from your federal adjusted gross income. Both deductions are below-the-line — they reduce federal taxable income but leave AGI untouched — so neither reaches this state's return automatically. Anything you get here had to be legislated separately.
Tips in North Carolina
Still taxedNCDOR states flatly in its TY2025 federal-law-impact FAQ: "No. The New OBBBA Deductions are taken after a taxpayer calculates AGI and therefore do not affect North Carolina taxable income" — because G.S. 105-153.4(a) defines North Carolina taxable income as the taxpayer's adjusted gross income as modified (Form D-400, line 6 is federal AGI), and House Bill 11 ("No Tax on Tips, Overtime, Bonus Pay") was never enacted.
Source: NCDOR, "Questions and Answers About the Impact of Federal Law on N.C. Individual and Corporate Income Tax Returns for Tax Year 2025," Q8 · last reviewed
Overtime in North Carolina
Still taxedIdentical mechanism and identical NCDOR answer — and note the trap: Senate Bill 595 / S.L. 2026-31, signed 2 July 2026, advanced North Carolina's static IRC conformity date all the way from 1 January 2023 to 5 July 2025 (the day after OBBBA), yet that does NOT deliver the §224/§225 deductions, because conforming to the Code does not change the fact that the state base begins at AGI; NCDOR says "The General Assembly must enact legislation to allow taxpayers to reduce AGI for similar adjustments," and HB 11 (which would have created state deductions for FLSA overtime, tips, and up to $2,500 of bonus pay effective TY2025) has not passed.
Source: NCDOR TY2025 federal-conformity FAQ (Q8) and NC House Bill 11 (2025-2026 Session), still not enacted · last reviewed
Whatever your state does, your payroll taxes do not change
Both deductions reduce income tax only. Social Security and Medicare are still charged on the same wages, in every state.