Tax Deductions for Tips and Gambling Losses Under Consideration in North Carolina

Tax Deductions for Tips and Gambling Losses Under Consideration in North Carolina

North Carolina lawmakers are reviewing new bills that would reduce taxes on tips, overtime pay, and gambling losses.

A Republican-backed "No Tax on Tips" bill had its first House committee hearing on Tuesday. Similar to a proposal by President Donald Trump at the federal level, this bill would allow workers to deduct up to $2,500 in tips, bonuses, or overtime income from their state taxes.

Rep. Jay Adams, R-Catawba, raised concerns about potential abuse of the tax break, asking the bill's sponsor, Rep. Harry Warren, R-Rowan, whether the risks had been fully considered. Warren acknowledged that "nobody has," but pointed out that around 20 other states are exploring similar bills, and there are at least four federal bills related to the issue. He added that the impact on state tax revenue hasn't yet been estimated but that a legislative analysis will be conducted.

Another bill under consideration would create an income tax deduction for gambling losses. Rep. Erin Paré, R-Wake, argues that it is unfair for gamblers to pay taxes on winnings when they ultimately broke even or lost money during the year. She explained that although North Carolina legalized sports betting, people are often surprised to learn they owe taxes on their winnings, even if their overall net income from gambling is zero.

"Even though there's gambling in the title, this is not a gambling bill — it's a fair tax bill," Paré said. "North Carolina law requires me to pay income tax on what I won, without considering my losses, while federal law allows me to deduct my losses, up to the amount of my winnings."

Opponents, however, argue that the tax deduction could encourage more gambling. Rev. Mark Creech of the conservative group Return America stated, "The bill reduces the immediate financial impact of losing money, which lowers the natural deterrent against risky behavior. People might feel encouraged to gamble more frequently or bet larger amounts, knowing that some of their losses will be covered by the state."

Rep. Keith Kidwell, R-Beaufort and co-sponsor of the bill, emphasized that he has opposed efforts to expand gambling in North Carolina but believes it is unfair to tax gambling income without allowing deductions for losses, as it goes against the North Carolina Constitution.

The House Commerce and Economic Development Committee is set to vote on both bills when it meets again next week

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