Picture this: You're a bartender hustling through the holiday rush, depending on tips to pay the bills, and suddenly the government says you can keep more of that hard-earned money tax-free. Could this be the lifeline the service industry needs?
As the festive season lights up Long Island, Michael DiStefano is right in the thick of it, slinging drinks at the iconic Milleridge Inn in Jericho. He's whipping up seasonal specialties like the Grinch Tini—a vibrant green cocktail inspired by the holidays—and the Christmas Cosmo, serving a steady stream of patrons who keep the place buzzing. Tips are his bread and butter, forming the bulk of his annual earnings, which hover between $50,000 and $60,000 after taxes and expenses. The holiday period especially boosts those gratuities, making it a bit easier to stretch his paycheck. Yet, even with generous customers, DiStefano, who resides in Franklin Square with his family, often finds his finances squeezed. He shares a 2009 Nissan Altima with his grandmother, and when the car isn't available, he's shelling out up to $100 in rideshare costs just to commute to and from his shifts.
"Life in the service world can be financially unpredictable," DiStefano admits from behind the bar. "There's no telling how much you'll pocket at the end of the night."
At just 21 years old, DiStefano is eager to leverage a new federal initiative dubbed the "no tax on tips" policy, which he sees as a potential boost to his income. This measure, rolled out through the One Big Beautiful Bill Act (you can read more about it here: https://www.newsday.com/news/health/big-beautiful-bill-healthcare-xim4gxuj) earlier this summer, lets tip-reliant workers deduct up to $25,000 from their taxable income on certain gratuities, effective until the end of 2028. For beginners wondering what that means, a tax deduction essentially reduces the amount of money Uncle Sam considers as your income, which could lead to lower taxes owed and possibly a bigger refund check come filing time.
But here's where it gets controversial... Is this just a feel-good perk, or does it really address the deeper challenges facing everyday workers?
What Newsday Uncovered
- This federal "no tax on tips" program enables tip-dependent employees to claim a deduction of up to $25,000 on qualifying gratuities through 2028.
- Per the Internal Revenue Service, roughly 70 professions qualify, far beyond just bartenders and servers—including roles like handymen, tutors, salon stylists, and even delivery drivers.
- Importantly, New York State doesn't mirror this federal benefit for its own tax system.
DiStefano calls the deduction a "safety net." "It reassures me that I'll recoup some of the cash I earned through my labor," he explains. It's like having a financial cushion in an industry known for its ups and downs.
Restaurant owners and hospitality groups are optimistic that this perk could strengthen worker retention and attract new talent, especially post-pandemic. The coronavirus outbreak prompted many in the field to seek remote work options elsewhere. Dorothy Roberts, head of the Long Island Hospitality Association, believes the policy is a step forward and could revitalize the region's service sector. The state Department of Labor estimates around 20,300 Long Island jobs involve tip-based pay.
"This might draw in more qualified applicants," Roberts shares over the phone. "It's a positive move for our community."
That said, Roberts points out that non-tipped staff, such as those in the kitchen, feel overlooked and frustrated by their exclusion from the program. It's a fair point—why should only certain roles get this advantage?
And this is the part most people miss... While the federal policy offers relief, New York hasn't adopted it for state taxes. Workers can claim the deduction on their federal returns, but not on state ones. A proposed state bill (learn more at: https://www.nysenate.gov/legislation/bills/2025/S587) by State Sen. Jack Martins (R-Mineola) to introduce a similar tip deduction hasn't gained traction in Albany yet.
Policy analysts argue the tip break doesn't compensate for other pressing concerns, like escalating healthcare expenses or reductions in funding for the Supplemental Nutrition Assistance Program (formerly known as food stamps). Nathan Gusdorf, director of the nonpartisan Fiscal Policy Institute, describes it as a diversion from the bill's more significant and troubling elements.
"We're talking about massive tax breaks for the wealthy, funded by slashing Medicaid and SNAP," he says in an interview. "This could push millions toward food insecurity, and over 15 million might lose health coverage. The tip deduction feels minor compared to that."
To clarify for those new to taxes, roughly 70 job categories are eligible, as per the IRS—not limited to hospitality but including everyday gigs like tutoring or styling hair. To apply, you must submit a federal tax return (check out the IRS site: https://www.irs.gov/). Tips from cash, cards, or other methods get subtracted from your gross income, lowering what you owe. However, the benefit phases out for those with modified adjusted gross income over $150,000 (or $300,000 for joint filers). Also, note that this doesn't touch Social Security or Medicare taxes—employers still withhold payroll taxes on every tip dollar.
"This reform particularly aids lower- and middle-income earners who count on tips for survival," notes Chandler Riggs, a financial consultant and vice president at Fidelity Investments.
Back at Milleridge Inn, the atmosphere is lively on a recent Thursday, with servers darting through a dining area decked in garlands and reefs, accommodating a full house. The holiday team swells to over 50 staff members, per management. Butch Yamali, who runs the Dover Group (encompassing spots like Milleridge Inn, Coral House in Baldwin, and Maliblue in Lido Beach), anticipates the deduction will aid recovery in a sector hit hard by the pandemic's staff exodus. Closures and layoffs drove many to home-based jobs, and now, factors like unpredictable hours and seasonal demands make hospitality less appealing.
"These positions aren't the most sought-after right now," Yamali observes. "We're crossing our fingers that this policy boosts their appeal as career paths."
Yet, tax experts contend the "no tax on tips" initiative won't dramatically alter the landscape for most. It's a tiny slice of the One Big Beautiful Bill Act's overall tax cuts, they say, and unlikely to significantly influence employment trends. Corey Husak, tax policy director at the Center for American Progress, estimates fewer than 10 million U.S. workers receive tips, and many of those earn so little they don't owe federal income tax.
"A deduction won't benefit them if they have no taxes to offset," Husak explains. "For many, it's not a game-changer."
Despite the debates, DiStefano stays upbeat. If he gets a hefty refund, he's eyeing a dependable new vehicle next year. Recently, he got a $10 tip on a beer sale—more than the drink cost itself. Each gratuity feels like progress.
"Tips matter hugely to us all," he urges. "So, please, don't hold back when leaving them."
Tiffany Cusaac-Smith serves as a general assignment reporter for Newsday, with prior experience at USA TODAY and a degree from Howard University.
What do you think—does this "no tax on tips" policy genuinely support service workers like DiStefano, or is it overshadowed by broader issues like healthcare cuts? Could it spark a real comeback for the hospitality industry, or is it just a band-aid solution? And what about the frustration from non-tipped employees—fair point or overblown? We'd love to hear your take in the comments below. Let's discuss!
