'No tax on tips' and Long Island: What to know about Trump policy as it takes effect

During the holiday season, Michael DiStefano can be found behind the bar at the historic Milleridge Inn in Jericho. There, DiStefano shakes and pours drinks for hundreds of customers, including a holiday-inspired green concoction called a Grinch Tini and a Christmas Cosmo.

The tips, which make up the majority of his $50,000 to $60,000 take-home pay, flow more easily during the holidays. But even with gratuities, making his budget work is not easy. DiStefano, who lives in Franklin Square with his family, shares a 2009 Nissan Altima with his grandmother and sometimes has to pay $100 in rideshare fees to get to and from work when the car is unavailable.

"In the service industry, money could always be tight," he said while standing behind the bar. "You never know how much you're going to make."

DiStefano, 21, is hoping to take advantage of the federal government’s "no tax on tips" policy as a means to get a jump in pay. Passed under the One Big Beautiful Bill Act this summer, the policy allows workers who typically receive tips to receive up to a $25,000 tax deduction for certain gratuities until 2028.

"The no tax on tips really helps," DiStefano said, adding that it’s an "insurance policy."

"I know that I’ll get some of that money that I worked for back," he said.

Some restaurant owners and hospitality organizations say the tax deduction may improve the retention and recruitment of service workers, after the coronavirus pandemic led many in hospitality to pursue new opportunities.

Dorothy Roberts, president of the Long Island Hospitality Association, said the policy is headed in the right direction and may help bolster the region's service industry. On Long Island, about 20,300 workers are expected to receive some portion of their wages in tips, according to the state Department of Labor.

"It's something that could attract more employees" who are eligible, she said in a phone interview.

Still, Roberts noted that some non-tipped workers, such as kitchen staff, have expressed frustration at not being eligible for the policy.

A different story on state taxes

New York does not extend the "no tax on tips" policy on state taxes, meaning a worker can claim the deduction federally but cannot take it on their state returns. A state bill establishing a tax deduction for tips, introduced by state Sen. Jack Martins (R-Mineola), has not advanced in Albany.

Some policy experts have also said that the tax deduction under the Trump administration does not outweigh rising health care costs or a funding cut to the Supplemental Nutrition Assistance Program, once known as food stamps.

Nathan Gusdorf, executive director at the nonpartisan Fiscal Policy Institute, called the tip deduction a distraction from "really distasteful and much more consequential" portions of the federal reconciliation law.

"It's trillions of dollars of tax cuts for the well-off that come at the cost of huge cuts to Medicaid and to SNAP," he said in a phone interview. "And so we'll see millions of people be driven to hunger, and over 15 million Americans are going to lose their health insurance."

About 70 job types qualify for the deduction, including bartenders and servers, according to the Internal Revenue Service. Others included are employed as handymen, tutors, salon stylists and delivery drivers.

To claim the deduction, the person must file a federal tax return. Tips, whether paid in cash, credit card or another form, will then be deducted from the worker’s gross income, experts say.

The deduction winds down if the person’s modified adjusted gross income exceeds $150,000, according to the IRS. The limit is more than $300,000 for couples filing jointly.

"This change is especially meaningful for workers in lower‑ and middle‑income brackets — people who truly rely on tips to make ends meet," said Chandler Riggs, vice president and financial consultant at Fidelity Investments.

Riggs added in an e-mailed statement that the policy doesn’t impact Social Security or Medicare taxes.

"Workers still owe payroll taxes on every dollar of their tip income, and employers must continue withholding them," Riggs said.

'Please don't skip on the tips'

At the Milleridge Inn, servers whisked around a garland-lined and wreath-adorned dining room that teemed with diners on a recent Thursday afternoon. During the holiday season, the serving staff exceeds 50 people, management said.

Butch Yamali, founder of the Dover Group, a restaurant and events organization that includes the Milleridge Inn and other locations, such as the Coral House in Baldwin and Maliblue in Lido Beach, said he hopes the deduction will help the service industry after the pandemic led to an exodus of workers.

Amid restaurant closures and staff reductions, many people left the sector and took jobs that allowed them to work from home, Yamali said. Now, he added, many people are hesitant to take service jobs because of the work's seasonality, the holiday shifts required, and the very early and late hours.

He hopes that the "no tax on tips" policy will eventually make the hospitality sector a little more of a viable career path for people.

"So, they are not the most desirable jobs at the moment. We're hoping this will help, you know, bring up the desirability of it," he said in a phone interview.

Yet some tax policy experts have said "no tax on tips" does not equate to a gain for many tipped workers. They say the tax benefit accounts for a minuscule share of the tax cuts in the One Big Beautiful Bill Act and will not have a significant impact on the workforce.

Corey Husak, the director of tax policy at the Center for American Progress, a policy institute, said that in the United States, fewer than 10 million workers currently receive tips. Of that number, he said, many do not pay income taxes because "they are too poor to currently pay income taxes."

"So a tax deduction for their tips is not going to help out those workers because they don't have, you know, taxes to deduct against," he said in a phone interview.

Despite the uncertainty, DiStefano remains hopeful about the "no tax on tips" policy. If he receives a large tax refund, he hopes to buy a new, reliable car next year.

Recently, he received a $10 tip for selling a beer, which exceeded the item's cost. Every tip, he hopes, is a step closer to a new car.

"The tip is a big deal for all of us," he said. "So please don't skip on the tips."

By Tiffany Cusaac-Smith

tiffany.cusaac-smith@newsday.com@T_Cusaac

Tiffany Cusaac-Smith is a general assignment reporter for Newsday. She previously worked at USA TODAY and is an alum of Howard University.