NC ‘no tax on tips’ proposal would have little effect for workers, critics say

North Carolina lawmakers want to follow the federal government’s lead on exempting taxes on tips in most cases but critics of the policy said the minor benefits would only help a small number of workers.

The One Big Beautiful Bill Act, passed in July, allows workers to deduct up to $25,000 annually from their taxable income. The version in North Carolina would allow a deduction of up to $5,000 in tips annually.

Sally Hodges-Copple, public policy analyst for the nonpartisan North Carolina Budget and Tax Center, said it affects only a few workers.

“That North Carolina House proposal is expected to reach just about 2% of North Carolina households,” Hodges-Copple pointed out. “The most financial benefit that they would receive is $200 a year.”

Hodges-Copple argued a more effective and wide-reaching way to put money in people’s pockets is by raising the minimum wage. One bill in the North Carolina General Assembly would raise it to $18 per hour, which would raise wages for about a quarter of workers in the state by an average of $3,700 a year. The state’s current minimum wage is the same as the federal minimum at $7.25 per hour, and even lower for workers who get tips, at $2.13.

Hodges-Copple said stressed the no tax on tips policy shifts the burden from employers to taxpayers to subsidize low wages.

“You can very easily imagine employers wanting to rely more heavily on tipped labor because it’s essentially being subsidized through our tax code,” Hodges-Copple emphasized. “That shifts the responsibility away from employers to pay their workers a living wage.”

Hodges-Copple added workers need more money now than ever, especially as costs are expected to rise because of provisions in the One Big Beautiful Bill Act, cutting benefits for programs like food assistance for low-wage workers.

“That cost-of-living picture is just worsening for North Carolinians,” Hodges-Copple emphasized. “That’s why it’s really urgent for our lawmakers at the state and federal level to take action on raising wages.”

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