Tax Exemption on Tips Under New Law
ROCHESTER, N.Y. — When the “One Big Beautiful Bill Act” was enacted on July 4, it introduced a significant tax exemption for tips. This new law allows specific employees—like housekeepers, hairdressers, restaurant staff, and bartenders—to deduct qualified tips from customers, with a limit of $25,000 per year, effective from 2025 to 2028.
Many states have chosen to align their tax systems with these federal provisions, but regions like New York are still in a state of uncertainty.
“There’s definitely some uncertainty,” commented Ross Muller, of Muller Restaurant Group, which operates establishments like label in Pittsford and native in downtown Rochester. He noted that the tax exemption on tips could really aid in retaining existing workers and attracting new ones, especially considering how many have left the industry due to the pandemic’s impact.
“This is a great incentive to hire employees, particularly bartenders and servers,” he added. “It’s really beneficial for retention.” For Kellyn Larrabee, a single mom and server, the $25,000 maximum deduction feels a bit limited. “Every penny counts in my family,” Larrabee explained. “Food costs, clothing, everything is just more expensive these days.” She expressed hope that Albany will approve the tip deduction. “If you put that money in our pocket, that would be nice for us,” she stated, adding that losing such benefits could “dull our shine a little bit.”
However, opponents of the law argue that it could strain state finances, especially with rising expenses related to Medicaid and SNAP food assistance. Gov. Kathy Hochul’s office has indicated that decisions regarding this measure and others are expected within the month, with the next significant decision set for January 7.
Gov. Hochul has advocated for measures addressing the affordability crisis, such as cutting middle-class taxes and increasing the child tax credit. Her administration has delivered over $9 billion in tax relief through various initiatives, including a $2 billion inflation rebate program that provided checks to over 8.2 million New Yorkers.
As of now, no official confirmations or rejections have emerged. Some prominent media outlets have reported that New York has not approved the measure.
Muller, while trying to avoid political debates, wishes that Albany would support the restaurant sector. He believes that if employees have more financial freedom, it positively affects the wider community. “Taxes are already pretty high,” he said. “Many people are living paycheck to paycheck, and even a small change can significantly influence someone’s life.”
