Recent proposals in New York aim to provide tax relief for workers who earn tips, aligning with federal law. But how exactly do these changes work, and what do they mean for workers and taxpayers? Below, we explore the key questions about these tax policy shifts, how they differ across states, and what impact they might have on your refunds and income. If you're wondering whether your tips will be taxed less or how federal and state policies compare, you're in the right place.
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What are the proposed tax breaks for tips in New York?
New York Governor Hochul has proposed eliminating state income taxes on up to $25,000 in tips, aiming to align with recent federal tax policies. This change would mean that tips earned by service workers could be exempt from state taxes, potentially increasing take-home pay and reducing tax burdens for many workers.
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How do federal and state tax policies differ for workers?
While the federal government has implemented a 'no tax on tips' policy for certain income, not all states have adopted similar measures. Some states, like Colorado, automatically conform to federal law, offering similar benefits, whereas others, including New York, have yet to extend these provisions, meaning tips may still be taxed at the state level.
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What impact will these tax changes have on workers' refunds?
The IRS predicts larger refunds for many Americans due to unadjusted withholding from the 2025 law, which includes provisions to reduce taxes on tips. If states do not follow federal policy, workers in those states might not see the same benefits, potentially affecting their overall refunds and income.
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Are other states adopting similar policies?
Some states, like Colorado and South Carolina, automatically conform to federal tax laws, including tips-related provisions. However, many blue states, such as California and Illinois, are hesitant or have chosen not to adopt these changes, citing concerns over potential revenue shortfalls and budget deficits.
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Why are some states hesitant to adopt federal tax provisions on tips?
States worry that conforming to federal tax laws, especially those reducing taxes on tips, could lead to significant revenue losses. This could impact public services and state budgets, which is why many blue states are cautious or delaying adoption of these federal provisions.
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Will these tax changes affect my paycheck immediately?
The impact depends on whether your state adopts the federal provisions. If your state conforms, you might see less tax withheld from your tips, leading to higher take-home pay. If not, your tips could still be taxed at the state level, and your paycheck may remain unchanged until new policies are enacted.