(The Center Square) — New York business groups are urging Gov. Kathy Hochul and state lawmakers to eliminate the income tax on tips as part of broader efforts to provide relief for wage workers and reduce the state’s high cost of living.
In a letter to Hochul and state lawmakers Monday, the Business Council of New York State and other groups voiced “strong support” for the proposal to eliminate income taxes on tipped wages up to $25,000 annually, which is being considered as part of the state budget. They urged budget negotiators to include the plan in a final version of the spending plan.
“At a time when working families across the state are grappling with an ongoing affordability crisis, this policy represents a targeted, practical step to put more money directly into the pockets of hardworking New Yorkers,” the coalition said in a statement.
The “No Tax on Tips” policy, which was approved as part of President Donald Trump’s One Big Beautiful Bill Act, allows a federal income tax deduction of up to $25,000 on qualified tips for eligible workers.
Hochul proposed dropping the state’s income tax on tips as part of her “affordability” agenda, saying it would align New York with a change to the federal tax code enacted by President Donald Trump last year. She has also faced criticism from her Republican challenger, Bruce Blakeman, who criticized Hochul for not immediately supporting changes to state tax code to align with Trump’s tax cut proposal.
Democrats who control the state Senate and Assembly have backed Hochul’s proposal, but the annual spending package is more than a month late amid behind the scenes wrangling over policy issues.
The business groups said the No Tax on Tips proposal would provide “meaningful tax relief” by allowing New York workers “to retain more of their hard-earned money at a time when rents, groceries, childcare, transportation and other costs.
“Tipped workers are a vital part of New York’s economy,” they wrote. “From restaurants and hospitality to personal services and tourism, these workers help power industries that define our communities and drive economic activity across the state. In fact, many of these workers were defined as “essential” during the pandemic, and we believe they still are, and deserving of this targeted tax relief.”
The state expects to lose a projected $200 million in tax revenue over the next four years under the changes, if approved. In New York City, where the income tax is based on the state’s levy, the losses could be even greater. The Big Apple would lose about $239 million over four years under the changes, according to estimates.
New York City Mayor Zohran Mamdani supports the proposal, saying it would help boost working class New Yorkers even as the city faces a projected $5.4 billion revenue shortfall next year.
Critics of the changes, which include the nonpartisan Citizens Budget Commission say dropping the tax on tips would incentivize the state’s employers to shift wage workers to tipped, subminimum wage work, hinder efforts to raise the minimum wage and other negative impacts.
