Kathy Hochul Caves On ‘No Tax On Tips’

Trump’s One Big Beautiful Bill made a straightforward promise: more money in workers’ pockets.

The plan eliminated the federal tax on tips and overtime pay for linemen and factory workers, and created a new deduction for seniors relying on Social Security. Treasury Secretary Scott Bessent called it “the most pro-worker, pro-family legislation in a generation.” 

However, several blue-state governors were refusing to reciprocate by eliminating state taxes on tips, including Govs. Kathy Hochul (D-N.Y.), J.B. Pritzker (D-Ill.), and Jared Polis (D-Colo.). Treasury Secretary Scott Bessent accused them of “deliberately blocking their own residents” from the bill’s benefits at the state level.

Bessent made clear that states that refused to comply with the law should expect consequences.

“Treasury stands ready to work with any state committed to delivering on that promise, but we will not stand idly by as this obstructionism drags down the national recovery,” he said. “This is about fairness. This is about opportunity. And this is about putting America first, starting with the families and workers who make our economy the envy of the world.”

Kathy Hochul has now caved. On New Year’s Day, she announced that New York will finally move to exempt service workers’ tips from state income taxes on up to $25,000 in tipped income.

“As we welcome in the New Year, affordability remains my top priority and I am doubling down on my commitment to put money back in New Yorkers’ pockets,” Governor Hochul said in a statement Thursday.

“Starting today, tax rates for the vast majority of lower and middle-class New Yorkers will be cut, families with children will see a sweeping increase in the child tax credit, and minimum wage workers across the state will see their wages go up. I’m kicking the new year off with a proposal of no state income tax on tips, continuing my efforts to make New York more affordable for hard working New Yorkers.”

The change comes only after months of outrage from restaurant owners and service workers who accused Albany of putting politics ahead of paychecks.
Service industry workers noticed and called it a slap in the face to people barely scraping by in such an expensive state. 

One worker, reacting to Hochul’s original stance, told the New York Post last month, “Screw her.”

Another called her refusal “disgraceful,” while a different worker described it as “disheartening” that the governor would block a policy that could put real money back in their pockets. They argued that Albany is effectively punishing people who live off tips, with one server saying, “We’re the ones who make the least and get taxed the most.” 

“Their hands are in everything and finally they’re doing some good and they passed the bill and now the state comes and screws you,” said Jackie Puttre, manager of P. McDaid’s Irish Pub in Midtown.

 Others stressed how transformative the policy could be; as one put it, “That extra money could help me pay my rent and maybe work one less double shift.” To these workers, Hochul’s opposition to eliminating the state tax on tips proved she is out of touch with the reality of living on tips in New York. 

 “It’s like, what are we doing? Just leave it to Kathy Hochul to do that.” Bartender Hannah Teal said she earned only $40,000 in 2024 after state taxes and figured she’d make at least $3,000 more if New York followed Trump’s lead. With Hochul seeking reelection in November, it must have become clear that refusing to eliminate taxes on tips would hurt her campaign. 

Nassau County Executive Bruce Blakeman, a Republican running for governor of New York, had been among her sharpest critics for moving too slowly, welcomed the shift with a jab of his own.

“I see Kathy Hochul is doing a u-turn on taxing tips. I was told she changed her mind after I said I would never tax tips,” Blakeman told The New York Post. “Kathy, if you want more of my ‘tips’ on how to govern, just continue to follow my lead.”

While the flip-flop is welcome news for the service industry, some are still criticizing her for not acting quickly enough.

But the tax eliminating proposal has existed in Albany in some form since at least early last year when Assemblyman Mike Durso (R-Nassau) and state Sen. Jack Martins (R-Nassau) introduced a bill to scrap levies on tips.

Durso said Hochul shouldn’t wait to pack the policy into the burgeoning state budget package, which isn’t likely to be passed before its April 1 deadline.

“We don’t need to add stuff to it, attach stuff to it that’s going to make it stink. Let’s just get it done,” Durso said.

“This is plain and simple. It’s going to help working class people,” he added. “I don’t see any pushback, and if there is pushback on it from any of my colleagues, shame on them because they obviously have never worked in these types of industries and understand how hard these people work.”

Hochul narrowly won reelection in 2022 against Republican Lee Zeldin, and polls have suggested Hochul isn’t a lock for reelection. Several polls showed Hochul either locked in a tight race or losing to Rep. Elise Stefanik (R-N.Y.). Though Stefanik has since dropped her bid for governor, Hochul can’t afford to anger working-class voters, even if it is to spite Donald Trump.