Tax Services for Hospitality & Hotels

Hotel Occupancy Taxes in NYC

If you operate a hotel, motel, or short-term rental in New York City, the tax stack on each room night is staggering. Here’s what your guests are actually paying on top of the room rate:

• New York State sales tax — 4%
• NYC sales tax — 4.5%
• MCTD surcharge — 0.375%
• NYC hotel room occupancy tax — 5.875%
• NYC $1.50 per unit per day fee — flat fee regardless of room rate

Add it up and you’re looking at roughly 14.75% plus $1.50 per night. On a $300 room, that’s about $46 in taxes. Every single night. You’re responsible for collecting all of it, reporting it on the correct forms, and remitting it on schedule. The city occupancy tax is filed on Form NYC-HTX quarterly. Miss a filing and the penalties start at 5% per month.

Restaurant and Bar Tax Obligations

Prepared food in New York is subject to sales tax at 8.875% in the city. That applies to everything you serve — dine-in, takeout, delivery, catering. There’s no exemption for food sold at a restaurant, unlike grocery items which are tax-free.

The trickier issue is tip reporting. The IRS requires that tips totaling 8% or more of gross receipts be allocated among tipped employees. If your staff’s reported tips fall below that threshold, you’re required to allocate the difference using Form 8027. Failure to file means penalties, and it also draws attention to your payroll records.

Cash-heavy businesses get extra scrutiny. If your credit card tip percentage is 20% but your cash tip reporting is 8%, the IRS will notice that gap. We help you set up reporting systems that are accurate and defensible, so your staff reports correctly and you aren’t left holding the bag.

OBBBA-2025 Tips Deduction — What It Means for Tipped Employees

OBBBA-2025 §70402 (P.L. 119-21) added a new above-the-line federal deduction for qualified tips of up to $25,000 per year for tax years 2025–2028, codified as IRC §224. The deduction phases out at $150,000 MAGI single / $300,000 MFJ. It applies to W-2 tipped employees in tip-customary occupations — servers, bartenders, hotel housekeeping, valet, hairstylists, hosts — and to self-employment tipped income (though the SE-tax piece isn’t reduced).

For most front-of-house and housekeeping staff, this means little to no federal income tax on tips up to $25,000 per year. New York didn’t conform: tips remain fully taxable on the IT-201, so the federal benefit doesn’t carry through to the state return. FICA also still applies on every dollar of reported tips. Communicate this to your staff at year-end so they don’t miss the deduction on their personal return. Nothing changes about your Form 8027 filing, your tip allocation, your Pub 531 tip recordkeeping, the FICA tip credit, or your withholding.

Payroll for Staff-Heavy Operations

A 50-room hotel might have 30 to 60 employees across housekeeping, front desk and management. A restaurant with two seatings a night could have 25 to 40 people on the payroll. That’s a lot of W-2s, a lot of withholding calculations, and a lot of room for error.

New York requires employers to provide paid family leave, disability insurance, and workers’. Compensation coverage. The state’s wage theft prevention laws require annual written notices to each employee confirming their rate of pay, overtime rate, and pay frequency. Hospitality businesses are frequent targets for Department of Labor audits, especially around overtime calculations for tipped employees.

We handle payroll tax filings, tip credit calculations, and make sure overtime is calculated correctly under both federal and state rules. Under the New York Hospitality Industry Wage Order (12 NYCRR §146-1.4), tip credit is used in the overtime calculation: the OT rate equals the cash-wage rate plus the same tip allowance taken at straight time, then multiplied by 1.5. So a server paid the $10.65 hospitality cash-wage rate (NYC, 2025) with a $5.35 tip credit gets OT at 1.5 × $16.00 – $5.35 = $18.65/hour. Operators who calculate OT on the full minimum wage instead of the credited rate are overpaying labor.

Depreciation and Capital Improvements

Hotel renovations and restaurant buildouts are expensive. A full hotel room refresh runs $15,000 to $40,000 per room. A restaurant buildout in Manhattan can hit $300 to $500 per square foot. The good news: most of these costs are depreciable, and many qualify for accelerated treatment.

Qualified improvement property (QIP) — improvements to the interior of a nonresidential building — qualifies for bonus depreciation. The One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, restored bonus depreciation under IRC §168(k) to 100% for property placed in service after January 19, 2025, reversing the TCJA phase-down before it fully took effect. A $2 million lobby renovation completed after that date can be deducted in full in year one rather than spread over 15 years. The 40% and 60% rates that appeared on older planning charts are no longer in effect. Section 179 also applies to furniture and equipment (FF&E) like beds, tables, kitchen equipment, and POS systems.

Sources & References

• IRS Form 1040 Instructions
• 26 U.S.C. § 1 — Tax Imposed
• One Big Beautiful Bill Act (P.L. 119-21) — §70402 IRC §224 (tips deduction); §70401 IRC §168(k) (bonus depreciation)
• 12 NYCRR §146 — NY Hospitality Industry Wage Order
• New York State Tax Rates