New Jersey has not yet signed on to the federal “no tax on tips” policy, leaving tipped workers paying full state income taxes on their earnings.
Tipped workers in New Jersey, including servers, bartenders, delivery drivers, hairstylists, and others in the service industry, received partial tax relief at the federal level in 2025.
The federal No Tax on Tips Act, signed into law in July 2025, allows workers to deduct up to $25,000 in qualified tip income from their federal taxable income for tax years 2025 through 2028. That means eligible workers can reduce what they owe to the IRS when they file their 2025 returns in 2026.
However, the change does not automatically apply to state income taxes.
Each state must separately decide whether to conform its tax code to the federal policy.
As of December 2025, New Jersey has not conformed, meaning tipped workers in the state still pay full New Jersey income tax on tip income, with rates ranging from 1.4% to 10.75%, even as the federal government waives its share.
During the current legislative session, lawmakers introduced A-4793 / S-3409, a bill that would fully exempt tip income from New Jersey state taxes with no dollar cap. The proposal has not advanced and remains pending.
The lack of state action has drawn attention because workers in states that do conform will receive the full benefit of the federal policy, while workers in non-conforming states will not.
A Question for Governor-elect Mikie Sherrill
As Governor-elect Mikie Sherrill prepares to take office in January 2026, service industry workers are looking for clarity.
Will your administration support or prioritize legislation to bring New Jersey into conformity with the federal no-tax-on-tips deduction, or consider a broader state-level exemption, so that tipped workers receive the full intended benefit?
Thousands of New Jersey residents work in tip-based roles, many earning low to moderate wages. For them, state tax treatment of tips can have a meaningful impact on take-home pay. As the service sector remains a major part of New Jersey’s economy, how the state responds will be closely watched.
