Does North Carolina follow the federal no-tax-on-tips and overtime deductions?
DOES NOT CONFORM
North Carolina does not follow the federal deductions for state income tax. You can still claim the tips and overtime deductions on your federal return (Schedule 1-A) — they simply do not reduce your North Carolina state tax. Do not assume your state return treats this income the way your federal return does.
Verified against the official state source below — last verified October 26, 2026
| Deduction | North Carolina position |
|---|---|
| Federal tips deduction (IRC §224) | Does not conform |
| Federal overtime deduction (IRC §225) | Does not conform |
What the state itself says
"For individuals, North Carolina taxable income starts with federal adjusted gross income ('AGI')."
- Official source
- NCDOR Important Notice, "Impact of Recently Enacted Laws on North Carolina Individual and Corporate Income Tax Returns" (July 23, 2026; updated Oct. 9, 2026)
- Tax years covered
- 2025 and 2026.
A companion NCDOR notice (Jan. 8, 2026) holds that for 2025 North Carolina referenced the IRC as of January 1, 2023, so individuals "cannot include" OBBBA changes; Session Law 2026-31 (SB 595, enacted July 2, 2026) later updated the IRC reference date to July 5, 2025 — but §§224/225 are not part of federal AGI in any event, and SL 2026-31 enacted no tips/overtime deduction (its new individual deduction, §105-153.5(b)(17), is for timber casualty losses). A tips bill (SB 983) was filed only.
Your federal deduction is separate
Whatever your state does, the federal deductions run on their own rules: check your W-2 codes with the W-2 Code Checker, estimate with the Tips Calculator and Overtime Calculator, and see the glossary for any term. All state positions: the state-by-state index.
State position verified October 26, 2026 from the official source above. State guidance changes; confirm on the source before filing. This page is general information, not tax advice.