No tax on tips in New York: what you actually keep in 2026

It is the end of a double. You have cashed out, counted the fold of bills, watched the card tips land in the app, and somewhere between the subway and your front door the same thought shows up that always does: how much of this is actually mine?

For a year now, that question has had too many answers.

The news said tips were not taxed anymore. Someone at work said New York never went along with it. Your cousin, who does taxes on the side, was sure the city did not. Then in May, Albany passed a budget, and nobody stopped to explain what it meant for the person holding the bills.

So here it is, without the noise.

The short answer

New York State tax

Yes

From tax year 2026. Up to $25,000 of qualified tips comes off your New York income, on the same terms as the federal deduction.

New York City tax

Yes

From tax year 2026. The city taxes the same income the state does. When the state number drops, the city number drops with it.

Your 2025 return

No

Washington started with 2025. New York starts with 2026. This coming spring, the state and city give you nothing.

Overtime

No

New York adopted the tips deduction and left the overtime one behind.

That is the headline. The rest of this page is the part that decides whether the headline applies to you, and there is one item near the end that can quietly cost you all of it.

Does “no tax on tips” apply to New York State tax?

Yes. Starting with tax year 2026.

The state budget signed on May 28, 2026 added one sentence to New York’s income tax law. It does not even contain the word “tips.” It says you may subtract:

“an amount of up to twenty-five thousand dollars to the extent allowed as a federal deduction pursuant to section two hundred twenty-four of the internal revenue code.”

Read that twice, because the whole law is in it. New York did not write its own rules about who counts as a tipped worker. It pointed at the federal rules and said: whatever they allow, we allow, up to $25,000.

Two things follow.

Every federal condition comes with it. If the federal rules phase you out, New York phases you out. If the federal rules say your job is not on the list, New York says the same.

The bill you may have read about never passed. There was an earlier proposal, the one that talked about “cash and credit card tips” and had no income limit. It is still sitting in a Senate committee. Plenty of articles, some from law firms, still describe it as the law. If a page tells you New York’s version has no phase-out, it is describing a bill that never left the room.

Does it apply to New York City tax?

Yes. This is the question almost nobody will answer straight, so here is exactly why.

New York City’s income tax is charged on something called “city taxable income.” State law defines it this way:

“The city taxable income of a city resident individual shall mean and be the same as his or her New York taxable income as defined in section six hundred eleven of this chapter”

The sentence goes on to a single exception, and it concerns contributions to a state charitable fund. Tips are not it. We went through every section of the city’s tax article looking for a carve-out. There is none.

So the chain is short. Take your federal income. Subtract what New York lets you subtract, which now includes your tips. That is your New York taxable income, and by law it is also your city taxable income. The city’s rates land on a number that already has the tips taken out.

The city’s own budget office said the same thing in February, while this was still a proposal: adopting the federal rule would give workers “the same $25,000 deduction on both their NYS and NYC taxes.” They put the cost to the city at $56 million in 2027, rising to $64 million by 2030. That is money leaving the city’s ledger and staying with the people who earned it.

Live in Yonkers? The city surcharge there is a percentage of your state tax, so it falls too.

What if you live in New Jersey or Connecticut?

New Jersey: nothing. If you live in New Jersey and serve tables in the city, the New York deduction helps on your New York nonresident return. New Jersey itself gives you nothing. Its income tax is built differently, and the state has said so in plain words: the federal deductions for tips and overtime “do not affect a taxpayer’s New Jersey Individual Income Tax return.”

Connecticut: also nothing. Connecticut starts from a federal figure that still has your tips in it, because the federal deduction is taken further down the form. Four bills to change that were filed in Hartford in 2026. None left committee. You may read that Connecticut “decoupled” and makes you add something back. It did not. There is simply no benefit there to add back.

The fine print that decides who gets it

Because New York borrowed the federal rules, these are the federal rules. They are tighter than the slogan.

Your job has to be on the list

The deduction is only for work that “customarily and regularly received tips on or before December 31, 2024.” Treasury published the final list in April 2026, and it is wide and specific:

• Wait staff, bartenders, bussers and barbacks, dishwashers
• Barbers, shampooers, skincare specialists, massage therapists
• Manicurists and pedicurists, with “nail technician” written out by name
• Parking and valet attendants
• Delivery workers, including “app/platform-based delivery person,” which was added to the final version

You need a Social Security number

This is the hardest line in the law, and it is better to hear it now than in April.

The statute says no deduction is allowed unless the return includes the worker’s Social Security number. An ITIN does not qualify. And because New York only allows what the federal rules allow, a worker without a Social Security number gets nothing from the state or the city either.

A great many people who carry plates and paint nails in this city will read “no tax on tips,” do the math in their heads, and find out in the spring that it was never written to include them.

If you are married, you file together

A married worker who files a separate return is not eligible. Not federally, not in New York.

The $25,000 is per return, not per person

Two married bartenders filing jointly share one $25,000 cap. The regulations use that very example: $15,000 of tips plus $20,000 of tips is capped at $25,000.

It fades out at higher incomes

Above $150,000 of income, or $300,000 on a joint return, the deduction shrinks by $100 for every $1,000 over the line. Most tipped workers never touch it. A bartender married to a high earner might.

A tip has to be a tip

The law counts only money “paid voluntarily without any consequence in the event of nonpayment,” not negotiated, in an amount the customer chose. The automatic 20% on a party of eight is not a tip, even when the house hands it to you. Tip pools and tip-outs do count, as long as the money underneath was voluntary.

If you work for yourself, profit is the ceiling

A delivery driver filing a Schedule C can deduct tips only up to what the business actually netted after expenses.

One loose thread

The statute shuts out tips earned in certain professional fields, such as health, law and the performing arts, and treats employees as being in their employer’s field. The IRS has said it will not enforce that against employees until it writes final rules. If your tips come from a medical spa or a theater, ask before you count on the deduction.

What it will not do for you

It will not touch Social Security or Medicare. This is an income tax deduction and nothing more. Those two taxes still come out of every dollar of tips, and the IRS’s own W-2 instructions say so. If you were told “no tax on tips” meant no tax at all, this is where that ends.

It will not cover your overtime in New York. Congress created a separate overtime deduction. New York did not adopt it. We searched the state’s income tax law and the entire budget bill; the only overtime provision in there is a credit for farm employers. Your overtime is taxed by the state the way it always was.

It will not last forever. The federal deduction ends after 2028. New York’s is written to follow the federal one, so when Washington’s stops, Albany’s stops with it unless someone acts.

The box on your W-2 that decides everything

This is the part to act on now, in the fall, while it can still be fixed.

Starting with 2026, your employer has to report your tips in a new spot on your W-2: box 12, with the code TP. Next to it, in a new box 14b, goes a three-digit code for your occupation.

For 2025, if the employer did not break tips out, the IRS let workers piece the number together from other boxes. That grace is over. For 2026 the rule is blunt: tips “not separately reported” on your W-2 “are not eligible for the deduction.”

No code, no deduction. Not on the federal return, not for the state, not for the city.

One more thing to watch for. A worker whose job is not on the Treasury list gets the code “000,” and the instructions say tips under that code are not qualified. If you see “000” and you know your job is on the list, say something that day.

If you sign the paychecks

You are the person whose payroll decides whether your staff gets any of this. Here is what it takes, and there is something in it for you at the end.

• Give every tipped employee an occupation code now. Restaurants: 101 bartenders, 102 wait staff, 104 bussers and barbacks, 108 dishwashers. Salons: 603 barbers, 604 shampooers, 605 manicurists and pedicurists, 601 skincare specialists, 602 massage therapists. Up to two codes per person, and “000” if any of their tips came from a job that is not on the list.
• Get it in writing from your payroll provider that the 2026 W-2 will carry box 12 code TP and box 14b. The IRS waived penalties for missing this on 2025 forms. It has not done so for 2026. The cost lands on your staff first and on you second.
• Split voluntary tips from service charges in your register before the year closes. A mandatory charge is a wage. It goes in the regular wage boxes and never under code TP.
• Keep collecting monthly tip reports. Code TP reports the tips your staff reported to you. If they stop reporting, there is nothing to code.
• Restaurants with more than ten employees still file Form 8027. Allocated tips still go in box 8 of the W-2, not under code TP. The new law changed none of that.

Salon owners, this one is yours

For years, restaurants have claimed a federal credit for the Social Security and Medicare tax they pay on their employees’ tips. Salons were left out.

Not anymore. For tax years beginning after 2024, the credit covers “barbering and hair care, nail care, esthetics, and body and spa treatments.” It is a credit against your income tax, claimed on Form 8846, on tips above the $7.25 federal minimum wage. It applies to W-2 employees only; booth renters do not generate it.

If you own a nail salon in New York, New Jersey or Connecticut and you have never heard of Form 8846, that is worth a conversation before you file for 2025.

One caution so the two do not get mixed up: this is a federal tax credit, not a New York wage rule. New York ended the tip allowance for nail, hair and barber shops at the end of 2020. You still pay the full minimum wage in cash.

What to do this month

If you earn tips, look at your pay stub or pay app and see whether tips are tracked on their own line. Ask the code TP question at work. And if you do not have a Social Security number, know before spring that this deduction will not reach you.

If you employ tipped workers, the occupation codes and the payroll confirmation are one afternoon in the fall. In January they are a problem with your name on it. Salon owners should know sales tax is a separate question; sales tax on a gym membership in New York City includes a section on haircuts, tattoos and tanning.

How you will claim it. On the federal return, the deduction goes on Schedule 1-A. On the New York return it will be a subtraction, but the Tax Department has not yet published the 2026 instructions or the line for it. This page will be updated the week it does.

If you would like someone to look at your own numbers, including a New Jersey or Connecticut address, a spouse’s income or a Schedule C, contact us or call (646) 397-0003. We prepare returns for tipped workers and for the restaurants and salons that employ them, in English or Korean.