What are the rules for taxing overtime and tips in NC? Here’s what to know
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- The tax season deadline is right around the corner.
- Federal law made several changes for this year’s tax season.
- There are federal deductions for overtime and tips.
The deadline to file your taxes is right around the corner, with this tax season bringing several changes under federal law.
Some of those changes include deductions for some tips and overtime pay.
“A lot of servers and clients working in the restaurant industry, any professional serving industries are benefited by this provision,” said Jack Chaudhary, an IRS enrolled agent at Jain Consulting.
Overtime and tipping deductions
The new deductions are for 2025 to 2028, and require people to have a social security number on their return, according to the Internal Revenue Service.
- The “no tax on tips” deduction allows people to deduct up to $25,000 each year on qualified tips.
- The “no tax on overtime” deduction allows people to deduct up to $12,500 on qualified overtime pay that exceeds their regular rate of pay (sometimes called the “half” in “time-and-a-half” overtime pay). For example, if you are paid $10 an hour and work an hour of overtime, your hourly rate if $15. Only the $5, the amount over your regular rate, is eligible for the deduction.
The overtime amount may show up as “OBBBOTPREMIUM” under Box 14 or “other” on your W-2.
If it doesn’t, Chaudhary recommends looking at your pay stub, usually the last one of the year, to determine the overtime amount.
Other 2026 federal tax changes include extra deductions for seniors, expanded charitable deductions and car loan interest deductions, The Charlotte Observer previously reported.
Tax rules in North Carolina
However, these are only federal deductions and can’t be applied in your state returns.
“North Carolina doesn’t automatically conform to the federal tax legislation,” said Assistant Secretary Tax Administration Anthony Edwards. “The General Assembly and legislators they have to update the Revenue Act, which is the North Carolina tax laws.”
State law has to adopt those tax adjustments for them to apply for state filings, he said. The last update to the state was as of Jan. 1, 2023.
“The tax filing due date for individual income tax and other tax schedules is coming up,” Edwards said. “I encourage everybody to file timely and file electronically.”
The deadline for individuals to file their taxes is Wednesday, April 15.
