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Tax Year 2026Updated July 13, 2026

Does New York Tax Tips in 2026?

Unknown - New York has not issued guidance, and the federal deduction does not lower New York tax on its own. New York has not issued guidance on the federal tips deduction (IRC §224), and the deduction does not reduce New York tax on its own: New York starts from federal AGI, and the tips deduction is taken after AGI. Unless New York enacts its own subtraction, tips are taxed at the state rates of 3.9% to 10.9%, and NYC residents add 3.078% to 3.876% in city tax. The federal deduction still applies on your federal return.

How New York's Tips Tax Treatment Works

New York income starts from federal adjusted gross income (AGI), then applies New York additions and subtractions (IT-2105-I, line 1: "your federal adjusted gross income (AGI) plus or minus New York additions and subtractions").

The federal tips deduction under IRC §224 is claimed on Schedule 1-A after AGI is figured. It lowers federal taxable income, not federal AGI. Because the number New York starts from does not change, New York tax does not change either. There is nothing for New York to "add back"; the deduction simply never reaches the New York return.

For New York tipped workers to get state relief, New York would have to enact its own subtraction for tip income. As of this update, the Department of Taxation and Finance has issued no guidance and no such subtraction exists.

The NYC factor: New York City's resident tax (3.078% to 3.876%) is figured from the same New York income, so tips taxable for the state are also taxable for the city.

Federal Tips Deduction Quick Reference

DetailValue
IRC Section§224 (OBBBA)
Maximum deduction$25,000 tips
Deduction typeAbove-the-line (Schedule 1-A)
FICA still applies?Yes (Social Security 6.2% + Medicare 1.45%)
MFS eligible?No (MFJ or Single/HoH only)
Effective datesJan 1, 2025 – Dec 31, 2028
New York treatmentDoes not conform

Worked Examples Comparing Federal and New York Treatment

Example 1: Restaurant server in NYC (single filer, $38,000 income, $14,000 in tips)

Federal return:
Qualified tip income: $14,000
Tips deduction claimed: $14,000 (capped at $25,000)
Estimated federal tax savings: $1,680.00

New York return:
New York has not issued guidance on the federal tips deduction, and the deduction does not reach the New York return on its own. The full $14,000 in tip income stays in New York taxable income at 5.4%, about $756 in state tax. An NYC resident would owe about $530 more in city tax on the same tips. Those amounts would go away only if New York enacted its own subtraction for tips.

Example 2: Fine dining server (single filer, $75,000 income, $25,000 in tips - federal cap reached)

Federal return:
Qualified tip income: $25,000
Tips deduction claimed: $25,000 (capped at $25,000)
Estimated federal tax savings: $5,500.00

New York return:
The full $25,000 in tip income stays taxable in New York at 5.4%, about $1,350 in state tax. An NYC resident would owe about $964 more in city tax, for roughly $2,314 combined. New York relief would require a New York subtraction; the federal deduction alone does not change the New York figure.

Why the New York Answer Matters for Tipped Workers

  1. State rates: New York's 2026 rates run from 3.9% to 10.9%. A single filer's taxable income from $13,900 to $80,650 is taxed at 5.4%.
  2. NYC tax on top: NYC residents add 3.078% to 3.876%, figured from the same income, so the combined state-plus-city rate on tips is higher than in most places.
  3. A large tipped workforce: restaurants, hotels, bars and salons in New York City and across the state employ many tipped workers.

What to Watch For

New York's legislative session typically runs from January through June, and state relief for tips would take a New York subtraction enacted by the legislature. Check tax.ny.gov for any announcement.

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Frequently Asked Questions

Does New York conform to the federal OBBBA 'no tax on tips' deduction?
New York has not issued guidance on the federal tips deduction under IRC §224. Because of how the New York return is built, the federal deduction does not lower New York tax on its own: New York would have to enact its own subtraction for tips. Until it does, tips remain taxable on the New York return.
Why doesn't the federal tips deduction reduce New York tax automatically?
New York income starts from federal adjusted gross income (AGI), plus or minus New York additions and subtractions (IT-2105-I, line 1). The federal tips deduction is claimed on Schedule 1-A after AGI is figured, so it lowers federal taxable income but not federal AGI. Since it never changes the number New York starts from, New York tax is unchanged unless New York adds a subtraction of its own.
What New York income tax rate applies to tip income?
New York has 9 brackets from 3.9% to 10.9% for 2026. For a single filer, the 5.4% bracket covers taxable income from $13,900 to $80,650, which is where most full-time tipped workers' top dollars fall. Tip income is taxed at the same rates as wages.
Does NYC income tax apply on top of New York State tax on tips?
Yes. New York City residents pay city income tax of 3.078% to 3.876% on top of state tax, figured from the same New York income. Tips that stay taxable for the state stay taxable for the city.
What about Yonkers?
Yonkers residents pay a surcharge figured as a percentage of their New York State tax, and nonresidents who work in Yonkers pay a tax on wages earned there. Because both follow the state figures, tips that stay taxable for the state also raise the Yonkers amounts.
Do I still get the federal tips deduction if I live in New York?
Yes. The federal tips deduction under IRC §224 applies on your federal Form 1040 regardless of where you live, up to $25,000 of qualified tips. It reduces federal taxable income. It does not reduce New York State or NYC taxable income unless New York enacts its own subtraction.