What if the money you earn from those extra gratuities in your pockets could stay there longer? A bold new policy promises just that for tipped workers, sparking hope and debate alike. Dive in to uncover how this could transform lives – and why some say it's not the boost it seems.
Picture the holiday hustle at the historic Milleridge Inn in Jericho, where Michael DiStefano, a 21-year-old bartender, crafts festive drinks like the Grinch Tini and Christmas Cosmo for throngs of patrons. Tips aren't just extra change for him; they form the bulk of his annual earnings, ranging from $50,000 to $60,000 after taxes. During the festive period, they're especially generous, yet even with these bonuses, stretching his budget remains a challenge. Living in Franklin Square with his family, he shares a 2009 Nissan Altima with his grandmother and often shells out $100 on rideshares when the car isn't available.
'In the service world, finances can be pretty unpredictable,' DiStefano admits from behind the bar. 'There's no telling how much you'll walk away with at the end of the night.'
But here's where it gets interesting – DiStefano is pinning his hopes on the federal government's 'no tax on tips' initiative, a provision that could give him a significant edge. Enacted through the One Big Beautiful Bill Act earlier this year, this rule lets eligible workers deduct up to $25,000 from certain tip income on their federal taxes, effective until 2028. It's designed to lighten the tax load on those who rely heavily on gratuities, making every dollar earned feel a bit more rewarding.
What our investigation revealed:
- The federal 'no tax on tips' program enables tipped workers to claim a deduction of up to $25,000 on qualifying tips until 2028.
- Roughly 70 professions qualify, extending beyond bartenders and servers to include roles like handymen, tutors, salon stylists, and delivery drivers, as outlined by the IRS.
- New York State does not offer this same break on state tax returns.
For DiStefano, this feels like a safety net. 'The no tax on tips policy is a real lifesaver,' he shares. 'It's like having insurance that guarantees I'll recoup some of the hard-earned cash I put in.'
Restaurant owners and hospitality groups are optimistic too. They believe this could help draw back and keep talent in an industry hit hard by the pandemic, when many workers jumped ship for remote gigs. Dorothy Roberts, head of the Long Island Hospitality Association, sees it as a step forward for the region's service sector. With about 20,300 tipped workers on Long Island, per the state Department of Labor, she's hopeful. 'This could lure in more qualified employees,' she notes in a conversation over the phone.
Yet, Roberts points out a wrinkle: Non-tipped staff, such as cooks, are grumbling about being left out, potentially stirring workplace tensions.
And this is the part most people miss – the state-level disconnect. New York hasn't adopted a parallel deduction for state taxes, so while you can claim it federally, your state return won't reflect the savings. Efforts to change this, like a bill introduced by State Senator Jack Martins (R-Mineola), have stalled in Albany.
But here's where it gets controversial... Some experts argue the tip deduction is overshadowed by bigger issues in the same legislation. Nathan Gusdorf from the nonpartisan Fiscal Policy Institute labels it a 'distraction' from harsher elements, including big tax breaks for the wealthy funded by cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps).
'We're talking about trillions in tax relief for the affluent, paid for by slashing aid that could leave millions hungry and over 15 million without health insurance,' Gusdorf emphasizes in an interview. Is this policy a genuine help or just window dressing for deeper inequities? It's a debate worth pondering.
Remember, to qualify, you must typically earn tips and file a federal tax return. Tips from cash, cards, or other methods get subtracted from your gross income. Beginners, think of it like this: A tax deduction reduces what you owe Uncle Sam on that income, but it phases out if your modified adjusted gross income tops $150,000 (or $300,000 for joint filers).
'This is particularly impactful for those in lower- and middle-income groups who depend on tips,' explains Chandler Riggs, a vice president and financial advisor at Fidelity Investments in an email. 'It doesn't touch Social Security or Medicare taxes, though – workers still pay payroll taxes on every tip dollar, and employers withhold accordingly.'
Back at the Milleridge Inn, servers buzz through a festive dining area decked with garlands and reefs on a busy Thursday. With over 50 staff during holidays, owner Butch Yamali of the Dover Group envisions this policy revitalizing hospitality post-pandemic. Restaurants shuttered, staff dwindled, and the allure of remote work tempted many away. Now, seasonal demands, odd hours, and physical toll make these roles less appealing. Yamali hopes the tax break boosts their appeal.
'These jobs aren't the most sought-after right now, but we're optimistic this will make them more attractive,' he says in a phone chat.
Still, critics like Corey Husak from the Center for American Progress caution that the benefits might be overhyped. With under 10 million tipped workers in the U.S., many earn so little they don't pay federal income taxes at all. 'A deduction won't help if there's no tax bill to offset,' Husak notes. 'For them, it's negligible.'
Despite the mixed views, DiStefano clings to optimism. A big refund could mean a new car soon – he even got a $10 tip on a beer sale recently, covering more than the drink's cost. Every gratuity edges him closer to stability.
'Tips mean everything to people like me,' he says. 'So, please, don't forget to leave them.'
Tiffany Cusaac-Smith is a general assignment reporter for Newsday. She previously worked at USA TODAY and is an alum of Howard University.
What do you think? Is the 'no tax on tips' policy a fair win for hardworking service staff, or does it paper over larger economic injustices? Do you agree it could change careers in hospitality, or is it just a small perk in a flawed system? Share your take in the comments – let's discuss!
