When it comes to taxes, the upcoming changes can stir a lot of emotions, especially for those who earn their living through tips and overtime. As we approach tax season, many individuals are eager to understand how federal tax legislation will impact their finances. The president has made bold promises about eliminating taxes on tips and overtime, but what does this mean for state tax returns?
In Rochester, N.Y., Cheryl Wright, who has dedicated over a decade as a server at Jines Restaurant on Park Avenue, relies heavily on tips for her income—about 90% of it, in fact.
"My yearly earnings from tips are around $45,000 to $50,000," Cheryl shared, expressing her relief upon hearing that Congress has approved new legislation aimed at providing tax relief for those in similar professions. "It’s comforting news, particularly with the ongoing high prices affecting our cost of living."
Now, let’s break down the facts: Starting in the 2025 tax year, a new federal law will introduce a tax exemption for tips and overtime. While employers will continue to withhold taxes, workers like Cheryl will be able to deduct up to $25,000 from their federal taxable income stemming from tips, along with an additional deduction of up to $12,500 for overtime pay.
But here’s where it gets controversial: New York State currently has no intention of aligning its tax policies with these federal changes. It remains one of the few states that will persist in imposing state income taxes on tips and overtime earnings.
There are two bills under consideration in Albany that aim to provide tax deductions on cash tips and overtime wages. Senator George Borrello, who sponsors both pieces of legislation, remarked, "This is a progressive move towards making life more affordable for the working class. I can't think of any other bill from this year that supports middle-income earners more than these two proposals that would eliminate taxes on tips and overtime."
Despite these intentions, the bills have not advanced out of committee for a vote, and Governor Kathy Hochul has yet to express support for them. A spokesperson for her office indicated that the governor would consider the legislation if it successfully passes both legislative chambers.
Cheryl remains hopeful that New York will adopt these changes but is thankful for the forthcoming federal relief. "I’m not going to be reckless with this money. It's going to be spent on necessities like groceries, bills, and gas," she explained.
Curious about the financial implications, we reached out to the Department of Taxation and Finance to inquire about the state’s revenue from taxes on tips and overtime. Unfortunately, a representative informed us that such data isn’t categorized separately on tax returns, leaving them without specific figures. However, a study by the Institute on Taxation and Economic Policy estimates that exempting tips and overtime from state taxes could cost New York approximately $844 million in revenue.
What do you think about these proposed tax changes? Are they a step in the right direction or do they raise more questions than they answer? We’d love to hear your thoughts!
