Tip Credit Calculator
Work out the FLSA tip credit, check whether cash wage plus tips clear minimum wage for the workweek, and see any makeup pay and tipped overtime owed.
Tip Credit Calculator
State and wages
The cash wage you entered is below the minimum cash wage for tipped workers in this state.
Hours and tips this workweek
Tips actually received and kept by the employee (net of any valid tip pool).
State cash-wage and minimum-wage figures change every January 1 and vary by locality, employer size, and role. Treat these as a starting default and verify with your state labor department or the DOL before relying on them.
How the tip credit works (federal $2.13 / $5.12 / $7.25)
A tip credit lets an employer count some of an employee tips toward the minimum wage. Instead of paying the full minimum wage in cash, the employer pays a lower direct cash wage and treats the tips as covering the rest. It only applies to a tipped employee, meaning someone who customarily and regularly receives more than $30 a month in tips.
The math is simple subtraction: the maximum tip credit is the applicable minimum wage minus the cash wage you pay. Federally that is $7.25 minus $2.13, or $5.12 per hour. Those three federal numbers ($2.13, $5.12, and $7.25) have not moved in years. Plenty of states set a higher cash wage or minimum wage, so the credit differs depending on where you are. Source: DOL Fact Sheet #15.
The minimum-wage makeup test: when employers owe a top-up
The tip credit comes with a condition. For each workweek, the cash wage plus tips has to reach at least the full minimum wage for every hour worked. If it falls short, the employer owes the difference, and that top-up has to be paid in the same pay period. You cannot average tips across weeks, so a strong week cannot cover a slow one.
The calculator runs this test for you. Enter the hours and the tips the employee actually kept, and the "employer top-up owed" line shows the exact makeup pay. When tips clear the floor, the top-up is $0 and the extra tips belong to the employee.
Tipped overtime done right
Overtime is where most tipped payroll goes wrong. Overtime pay is based on the full minimum wage (or the employee full regular rate if it is higher), not the $2.13 cash wage. The tip credit stays capped at the straight-time amount, $5.12 federally, even on overtime hours.
So the federal overtime cash wage is $7.25 times 1.5, which is $10.88, minus the $5.12 credit, which comes to $5.76 per hour. Computing overtime as $2.13 times 1.5 underpays the worker and is a frequent source of back-wage claims. This tool always builds the overtime rate on the full minimum wage and subtracts the capped credit after. If you pay several tipped workers, the multi-employee payroll calculator and the salary to paycheck calculator extend this to full paychecks and take-home math.
State rules: no-tip-credit states and the 2026 cash-wage table
Seven states do not allow a tip credit at all: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. There the employer pays the full state minimum wage in cash and tips are paid on top. Select one of them above and the calculator sets the credit to $0 and shows a notice.
The state selector fills in 2026 default figures for the minimum wage and the minimum cash wage, but these change every January 1 and several states vary by region, employer size, or role. Local ordinances in cities like Seattle, New York City, Denver, and Portland can exceed the state figure. Keep the fields editable and confirm your numbers with the DOL or your state labor department. One more thing worth flagging: the wage tip credit here is not the same as the FICA tip credit, a separate employer income-tax credit claimed on IRS Form 8846.
Running real tipped payroll for a restaurant or hospitality team? The Payroll Calculator app models hourly pay, overtime entries, and a dedicated tips bucket across all 50 states plus DC, so you can check compliance for the whole crew, not just one shift. For the employer-side tax view, see the employer cost calculator.
Frequently Asked Questions
Common questions about tip credit calculator
What is a tip credit?
A tip credit lets an employer count part of an employee tips toward its minimum-wage obligation. The employer pays a lower direct cash wage (as low as $2.13 per hour federally) as long as tips bring the worker up to the full applicable minimum wage ($7.25 per hour federally) for the workweek. Source: DOL Fact Sheet #15.
How do I calculate the tip credit?
The maximum tip credit is the applicable minimum wage minus the cash wage you pay. Federally that is $7.25 minus $2.13, or $5.12 per hour. Enter your figures above and the calculator returns the max credit, whether tips cover the makeup to minimum wage, and any top-up owed.
What is the federal tipped minimum wage in 2026?
The federal minimum cash wage for tipped employees is still $2.13 per hour. The maximum federal tip credit is $5.12 per hour against the $7.25 federal minimum wage. Many states set a higher cash wage or minimum wage, so check your state figure in the selector.
What if an employee tips do not reach minimum wage?
The employer has to pay the difference for that workweek. Tips cannot be averaged across weeks. This tool shows the exact makeup pay owed on the "employer top-up owed" line, and that amount has to be paid in the same pay period. Source: DOL Fact Sheet #15.
How is overtime calculated for tipped employees?
Overtime is based on the full minimum wage, not the $2.13 cash wage, and the tip credit stays capped at $5.12 even on overtime hours. Federally the minimum overtime cash wage is $10.88 minus $5.12, or $5.76 per hour. Computing overtime on the reduced cash wage is the most common tipped-payroll mistake. To run overtime for a whole team, try the multi-employee payroll calculator.
Which states do not allow a tip credit?
Seven states require the full state minimum wage in cash, with tips on top: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. In these states the tip credit is $0. Select one of them above to see the notice and the full-cash-wage math. Source: Symmetry, Rippling 2026.
Who counts as a tipped employee?
Under the FLSA, a tipped employee is anyone who customarily and regularly receives more than $30 a month in tips, such as servers, bartenders, valets, bellhops, and stylists. An employee who is tipped $30 a month or less is not a tipped employee, so no tip credit applies and full minimum wage is owed in cash. Source: DOL Fact Sheet #15.
What happened to the 80/20 rule?
In December 2024 the DOL withdrew the 80/20/30 rule and went back to the older dual-jobs standard. Employers cannot take a tip credit for time spent in a genuinely non-tipped job, but there is no federal 20% or 30-minute side-work tracking anymore. Some states still impose their own version, so check state law. To see employer-side payroll cost beyond wages, try the employer cost calculator.