OAN Staff Brooke Mallory
2:47 PM – Wednesday, December 31, 2025
Democrat-led states like California and New York are reportedly not conforming to the federal “no tax on tips” provision enacted earlier this year by the Trump administration, meaning tipped workers in the states will continue to pay state income taxes on their gratuities, despite the new federal deduction.
Governor Kathy Hochul (D-N.Y.) and New York’s Democrat leadership have notably declined to mirror the federal “No Tax on Tips” policy at the state level.
While the Trump administration’s 2025 tax reforms exempt tips from federal income tax, New York continues to tax this income, a move that critics argue undermines the state’s claimed commitment to affordability for service-industry workers.
While speaking to reporters, 30-year-old bartender Rion Gallagher of The Blasket, an Irish pub in Midtown, suggested that New York leadership is turning its back on tipped workers.
“Screw her,” Gallagher said about Hochul. “If we weren’t taxed on our tips, we’d be able to save more, we’d enjoy life a little more, maybe we wouldn’t have to pick up that extra shift.”
California tipped workers — particularly waiters, servers, bartenders, and hospitality employees — have also since expressed significant frustration and anger over their state’s decision, prompting workers on both sides of the political aisle to question why Governor Gavin Newsom (D-Calif.) has worked to block this effort and related bills, negatively affecting service workers throughout the Golden State.
“It would put a lot more money in my pocket if they didn’t tax [tips],” said Alex Frost, a bartender at Baja Cantina in Marina del Rey. “I don’t really quite understand it. I mean, California already taxes you more than any other state. I don’t see why they need my money.”
“I mean, it’s the whole reason pretty much anybody in the industry does the job is for tips … being able to deduct even a portion of that would would help significantly,” Frost added.
Newsom spokesperson Brandon Richards responded to the matter in a statement, as reported by the New York Post.
“The vast majority of Californians pay lower overall taxes than they do in high-tax states for workers like Texas and Florida, while also benefiting from our higher minimum wage, which is more than double Trump’s mediocre $7.25 an hour,” said Richards.
However, Newsom’s spokesman’s statement appears to be inaccurate, as California’s tax structure makes this perspective unlikely.
California imposes some of the highest income tax rates in the country, while Texas and Florida have no state income tax at all. Higher housing costs in California also lead to higher property tax payments in dollar terms, and the state’s sales tax rates are among the highest in the nation, meaning residents typically pay more through consumption as well. There is no evidence that the “vast majority” of Californians pay less overall than residents of no-income-tax states, and a higher minimum wage does not offset these tax differences.
The policy, a key campaign promise from President Donald Trump, was included in the “One Big Beautiful Bill Act” signed into law on July 4, 2025. It allows eligible workers to deduct up to $25,000 in qualified tips from their federal taxable income for tax years 2025 through 2028, with phase-outs for higher earners, beginning at $150,000 for individuals or $300,000 for joint filers.
While the federal change provides relief on U.S. income taxes — estimated to save qualifying workers an average of at least $1,800 annually — states have separately decided whether to align their tax codes.
Many states start their taxable income calculations from federal adjusted gross income, but can “decouple” from specific federal deductions to protect revenue.
California’s Democrat leadership has signaled no intention to adopt the deduction, while citing a projected annual revenue loss of around $3.2 billion. Democrat officials in the state have argued that these taxes are needed for the state’s public programs, education, and social services.
Additionally, many Democrat leaders who claim to champion tipped workers only do so through minimum wage increases and enhanced “labor protections,” arguing these reforms offer more long-term stability than a tax deduction.
However, there is palpable frustration among service workers in blue states where state-level taxes on tips remain in place. These workers often contend that federal tax exemptions provide more immediate financial relief than wage hikes, which they argue are frequently offset by rising consumer prices and business overhead.
Republican lawmakers in California had attempted to advance state-level exemptions, including amendments and bills like Senate Bill 17, which proposed a deduction of up to $20,000 for tips. However, these efforts were rejected by the Democrat majority without full debate.
Tipped employees in California must still report all tips as income on state returns and may need to add back the federal deduction when filing. The Franchise Tax Board is expected to issue guidance ahead of the 2026 filing season for 2025 taxes.
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