New York May Scrap State Income Tax on Tips Amid Budget Talks
New York Governor Kathy Hochul has put forward a plan to scrap the state’s income tax on tips. The move is part of her wider ‘affordability’ agenda aimed at easing financial pressure on workers. Business groups and some lawmakers have already thrown their weight behind the proposal. The idea has gained traction among Democrats who hold majorities in both the state Senate and Assembly. If approved, the change would form part of the state budget, which remains unresolved over a month past its deadline. Negotiations on policy issues have delayed the final agreement.
Business organisations in New York are pushing for the tax cut, arguing it would deliver ‘meaningful tax relief’ for workers. They want the exemption to apply to tips up to $25,000 a year, matching a federal policy introduced under President Donald Trump’s One Big Beautiful Bill Act. That law already allows a federal tax deduction on qualified tips.
New York City Mayor Zohran Mamdani has also backed the plan, despite the city facing a projected $5.4 billion budget shortfall next year. However, critics warn that removing the tax could encourage employers to shift more workers into tipped roles, where wages can fall below the standard minimum. The state itself estimates a $200 million loss in tax revenue over the next four years if the proposal goes ahead. The plan to eliminate the state tax on tips is now under consideration as part of ongoing budget talks. If passed, it would align New York with existing federal exemptions and provide financial relief for tipped workers. The final decision rests on whether lawmakers can reach an agreement in the coming weeks.
