Tipped minimum wage by state: cash wage, tip credit and top-up

How the tip credit works

The tip credit is not a separate wage; it is permission for the employer to let customers pay part of the minimum. The arithmetic is short. Take the minimum wage that applies, subtract the cash wage the employer pays, and the result is the largest part of your tips the employer may count. Under federal law that is $7.25 less $2.13, or $5.12 an hour. If your tips in a workweek average less than the credit, the employer owes the shortfall. A server in a federal-floor state who earns $4.00 an hour in tips receives $6.13 with the cash wage, so the employer must add $1.12 for every hour of that week, or $33.60 over 30 hours.

The test runs week by week, not over a month or a season. A slow Tuesday is averaged with a busy Saturday within the same workweek, but a strong week cannot carry a weak one. The employer must keep records of the tips you report so the calculation can be checked.

The cash wage, state by state

The table lists the general minimum wage on October 11, 2026, the lowest cash wage an employer may pay a tipped worker, and the largest tip credit that leaves. A dash in the credit column means the state requires the full rate before tips.

Three groups stand out. The no-credit states, Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington, treat tips as money on top of the full minimum, which makes them the best paid places for servers on an hourly basis. The federal-floor group, Alabama, Georgia, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Nebraska, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Utah, Virginia and Wyoming, lets the cash wage sit at $2.13, so nearly everything above that depends on customers. Everyone else sets a cash wage in between, often as a share of the full minimum, so it rises each time the general rate does. The widest gap between cash wage and minimum on file is in Nebraska, where tips may cover up to $12.87 of every hour. The narrowest is in Hawaii, at $1.25, and Hawaii only allows it when wages and tips together clear the minimum by a set margin.

What your employer must tell you first

The federal tip credit is not automatic. Before taking it, the employer has to inform you of the cash wage it pays, the amount of the tip credit it claims, that the credit cannot exceed the tips you actually receive, that you keep all of your tips except through a valid tip pool, and that the credit does not apply unless you were told these points. An employer that skips this notice cannot use the credit and owes the full minimum for the hours worked. Many states add written notice rules of their own, sometimes on each pay stub.

Tip pools, managers and service charges

When an employer takes a tip credit, a mandatory tip pool can only include workers who customarily and regularly receive tips, such as servers, bussers, counter staff who serve customers and service bartenders. Cooks and dishwashers can be included only in a pool run by an employer that pays the full minimum wage and takes no credit. Managers and supervisors may never keep any part of employees' tips, whether through a pool or otherwise, although a manager can keep tips from customers he or she served directly. A compulsory service charge added to the bill, such as a fixed percentage for large parties, is not a tip. It belongs to the employer, who may pass it on as wages, but it cannot be counted toward the tip credit.

Dual jobs raise a related question. A server who also spends part of the shift on work that is not part of the tipped job, such as cleaning a kitchen, may be owed the full minimum for that time. The federal rule turns on whether the side work is related to the tipped occupation and how much of it there is, and state rules can be tighter.

Overtime for tipped workers

Overtime is computed on the full minimum wage, not on the reduced cash wage. Under federal law a tipped worker's overtime rate is 1.5 times $7.25, which is $10.88, and the employer may still subtract the same $5.12 tip credit, so the cash paid for each overtime hour must be at least $5.76. A common payroll error is to apply 1.5 to the $2.13 cash wage, which gives far too little. In states without a tip credit, overtime is simply 1.5 times the full regular rate. The time and a half guide shows how bonuses and commissions enter the regular rate.

Local rates and tipped work

City and county minimum wages bring their own tipped figures. Some local ordinances allow no credit even where the state does, as in Flagstaff, Arizona; others set a local tipped cash wage that tracks the local minimum, as Denver does in Colorado. The District of Columbia sets its tipped base wage as a share of the full minimum and raises it each July 1. When a local rate applies, the tip credit is measured against the local minimum, not the state one. The city minimum wage guide lists the local rates on file.

Credit card tips and tip-outs

Tips paid by card belong to the employee as much as cash tips do. Under federal rules the employer may deduct only the processing fee charged on the tip portion, and the tip must reach you no later than the regular payday. A tip-out you hand to coworkers under a valid pool counts toward your tips only for the part you keep, so the minimum wage check should use your tips after the pool, not before.

If your tips do not reach the minimum

Keep your own log of hours and tips per shift, and compare it with your pay stub each week. If cash wage plus tips fell short, the employer owed a top-up for that week. The state labor agency takes claims under the state rule and the Wage and Hour Division under the federal one; either can order back pay. The agency decides the facts, and an employment lawyer can look at a case involving a tip pool or a dispute about which duties count as tipped work.