Next week’s House budget will slash state taxes on tips

The North Carolina House of Representatives is set to release its 2025 state budget early next week, with votes anticipated by midweek. On Friday, House leaders offered a glimpse into the budget’s tax priorities, which include two key initiatives aimed at easing financial burdens on North Carolinians.

The House budget proposal will slash taxes on tips for North Carolina workers. The first $5,000 of tips earned by service industry workers, such as servers and bartenders, will be exempt from state income tax. The North Carolina Restaurant & Lodging Association expressed support for the “no tax on tips” policy as a way to acknowledge the hard work of hospitality workers and ensure they keep more of their earnings.

Another initiative that will be included in the House proposal will reinstate the back-to-school sales-tax holiday. The tax-free weekend would allow families to purchase school supplies, clothing, and other essentials without sales tax starting in 2026, reducing costs for parents and students. The NC Retail Merchants Association condoned the effort as a win for families and retailers.

“The House budget reflects the priorities of everyday North Carolinians,” said speaker of the House Destin Hall, R-Caldwell. “We’re cutting taxes where it counts and restoring policies that deliver real relief to hardworking families. That includes eliminating taxes on tips — just like President Trump’s America First agenda, we’re putting workers first and making sure they keep more of what they earn.”

Though the House has pointed to just a few economic commitments that will be released in the budget next week, experts are hesitant to choose the House’s initial priorities over the Senate’s expansive tax cuts. The Senate’s budget proposes reductions to the state’s personal income tax rate and the franchise tax.

“While its encouraging to see the House recognize tax cuts as being helpful to North Carolina families, if these very targeted tax cuts are in lieu of the across the board tax cuts included in the Senate budget, then budget writers should support the Senate’s tax reforms,” said Brian Balfour, vice president of research at the John Locke Foundation. “Sound tax policy includes the principles of simplicity and equal treatment, both of which are not followed by the House’s tax plans. Providing relief to all North Carolina families and households would be a better alternative than further carving up the state’s tax code.”

With the House budget release imminent, leaders have shared teaser videos online. This follows the Senate GOP’s passage of its own budget approximately a month ago, setting the stage for negotiations between the two chambers throughout June.

The attention will soon shift to negotiations with the Senate throughout June to reconcile differences and finalize the state’s 2025 fiscal plan.