Why It Matters
New York Governor Kathy Hochul’s decision to embrace a no-tax-on-tips policy is drawing significant fiscal scrutiny, with projections showing the measure could reduce New York City’s tax revenue by $239 million. The policy, which mirrors a federal proposal championed during the 2024 presidential campaign, raises questions about municipal budget stability in one of the nation’s most expensive cities. While the debate centers on New York, the ripple effects of tip income tax exemptions are being watched closely by policymakers across the Northeast, including in Connecticut.
What Happened
Governor Hochul has signaled support for eliminating state income taxes on tip earnings received by workers in service industries. The proposal aligns with a broader national push to exempt gratuities from taxation, a policy that gained widespread attention when it was promoted during the 2024 federal election cycle.
New York City, which levies its own local income tax on top of state taxes, stands to absorb a substantial portion of the fiscal impact. According to projections cited by New York Focus, the city could lose approximately $239 million in tax revenue if the policy is enacted as proposed.
Business groups in New York have voiced support for the measure, arguing it puts more money directly in the hands of tipped workers. Labor unions, however, have largely remained on the sidelines and have not publicly endorsed the proposal, a notable absence given their typical influence in Albany on worker-related legislation.
By the Numbers
- $239 million: The projected annual revenue loss for New York City if the no-tax-on-tips policy takes effect.
- Millions of workers: Tipped employees in New York State span industries including restaurants, hospitality, personal care, and delivery services, representing a significant portion of the urban workforce.
- 2 tax layers: New York City workers pay both state and city income taxes on tip income, meaning a state-level exemption could trigger separate pressure on the city’s own tax structure.
- 2024: The year the no-tax-on-tips proposal gained national prominence as a campaign platform item, influencing subsequent state-level legislative discussions.
- 1 legislative session: The 2026 New York State legislative session is the current vehicle through which the policy is being advanced, with Hochul’s backing adding significant momentum.
Zoom Out
The no-tax-on-tips movement has spread rapidly across the country following its emergence as a prominent federal policy proposal. Several states have already moved to enact or study similar exemptions, reflecting a national trend toward targeted tax relief for service-sector workers.
Nevada, which has a large hospitality workforce and no state income tax, has been held up as a reference point in these discussions, though its tax structure makes direct comparisons difficult. States with progressive income tax systems, like New York and Connecticut, face more complex tradeoffs when evaluating the revenue impact of tip exemptions.
Connecticut policymakers are monitoring developments in neighboring New York closely. The two states share significant economic and workforce ties, particularly in the greater New York metropolitan area where workers frequently cross state lines. Any meaningful difference in how tips are taxed between Connecticut and New York could influence labor market dynamics and employer competitiveness along the border region.
The lack of union support in New York is also notable in a national context. Organized labor has historically been cautious about tip exemption proposals, arguing they do not address underlying wage structures and may create inequities between tipped and non-tipped workers in similar industries.
What’s Next
The proposal will continue moving through the New York State legislative process during the active 2026 session. Governor Hochul’s public support is expected to increase the likelihood of passage, though the $239 million projected cost to New York City may prompt pushback from city officials and budget watchdogs.
Lawmakers are likely to scrutinize the scope of the exemption, including which categories of tipped workers would qualify and whether income caps would apply to limit the revenue impact. Federal action on tip taxation, should it advance in Congress, could also reshape state-level calculations by establishing a baseline exemption that states would then choose to match or exceed.
A final vote and implementation timeline have not yet been announced as of late March 2026.