More pocket money: Bill would eliminate state income taxes for overtime, bonus pay

Those who are paid by the hour or who earn a bonus could see more money in their pockets if some state lawmakers have their way.

HB490, sponsored by Rep. John Bell, proposes an elimination of state income taxes for bonus pay up to $2,500 and for overtime pay.

Proponents of the bill say it would incentivize workers to pick up extra shifts and help employers fill vacant positions.

“It would reward workers for going that extra mile and extra effort for them and their families,” Bill Graham, the chairman of Citizens for Tax Reform, an advocacy group for middle class tax relief.

According to a 2019 study conducted by Opinion Diagnostics and Tar Heel Targeting, roughly 55% of North Carolina respondents would support the proposal eliminating state income tax on overtime pay. Nearly 33% opposed it, and nearly 12% are unsure. As for bonus pay, 57% of North Carolinians said they’d support eliminating state income tax on the first $2,500 earned.

Timothy Vermeer, senior policy analyst with the Center for State Tax Policy at the Tax Foundation, says the focus should be on lowering the tax rate all together.

“There’s really not a good economic reason for treating those different classes of income differently,” he said.

Vermeer noted that not everyone receives bonuses or even overtime pay.

“You might not see more productivity from certain professions, you may just see a shift of how they are compensated,” he explained.

According to the Tax Foundation, individual income taxes are a major source of state government revenue, accounting for 40 percent of state tax collections.

Graham, however, says the potential revenue shortfalls from eliminating the state income tax would likely be replaced by consumer spending.