Fact Check: Gov. Hochul Endorses Exempting State Taxes on Tips After Initial Hesitation

New York Governor Kathy Hochul has shifted her position on tax exemptions for tipped workers, now fully endorsing the elimination of state taxes on gratuities after previously maintaining a non-committal stance on the issue.

Just two weeks prior, the governor’s office had indicated Hochul would merely “consider” such legislation if it successfully passed through both chambers of the state legislature. Her new position, announced in a New Year’s Day press release, commits to including “No Tax on Tips” legislation in her forthcoming budget proposal as part of a broader Affordability Agenda for New Yorkers.

The state-level proposal follows federal action taken in July, when Congress passed legislation allowing tipped workers to deduct up to $25,000 from their federal taxable income. Hochul’s initiative would extend similar relief to state tax returns, though her office has yet to provide specific details about the proposal’s structure or implementation timeline.

For service industry workers like Cheryl Wright, a server at Jines Restaurant on Park Avenue in Rochester, such tax relief could prove significant. Wright reports that approximately 90% of her income derives from tips.

“I think it’s nice to know, especially with prices still being high. I mean, cost of living,” Wright said, highlighting the financial pressures facing many service workers despite recent moderation in inflation rates across the country.

The governor’s announcement follows existing legislative efforts in Albany. A Republican-sponsored bill to establish state income tax deductions for cash tips has been awaiting action for nearly a year but never advanced out of committee for a floor vote.

Senator George Borrello, a co-sponsor of the Republican bill, has been a vocal advocate for tip tax relief. “I can’t think of any bill that we’ve seen this year that’s more supportive of the working class,” Borrello said, emphasizing the legislation’s potential impact on thousands of service workers across the state.

New York’s hospitality industry, which employs over 900,000 workers according to state labor statistics, has faced significant challenges in recent years. The sector was particularly hard-hit during the pandemic, with many establishments closing permanently and others still struggling to reach pre-pandemic revenue levels. Industry advocates have argued that tax relief for tipped workers represents a targeted approach to supporting these vulnerable workers without requiring direct government subsidies.

Last month, Borrello publicly challenged the governor to support the existing legislation, criticizing what he characterized as a disconnect between rhetoric and action on affordability issues. “Everything in New York is going up, from food to durable goods. So at some point you have to stop talking about affordability and start acting on it,” he said.

While welcoming Hochul’s apparent change of heart, Borrello questioned the timing and motivation behind her announcement, suggesting it may be politically motivated. “It’s interesting that after a year of this bill sitting in committee, the governor suddenly embraces it during an election year and after public criticism,” Borrello remarked in response to Hochul’s announcement.

The potential tax exemption comes as New York continues to grapple with high living costs and ongoing economic challenges. The state’s hospitality sector, particularly in New York City and other tourism-dependent regions, has shown signs of recovery but continues to face staffing challenges and rising operational costs.

If implemented, New York would join several other states that have enacted various forms of tax relief for tipped workers, though approaches vary significantly across jurisdictions in terms of eligibility requirements and exemption limits.