Tip Credit and Tipped Minimum Wage Calculator
Calculate employer tip credit, makeup pay, and total hourly cost for tipped employees in 2026 using state-specific cash wage and tip credit rates. Covers the federal $2.13 cash wage and $5.12 tip credit, the 7 states that prohibit tip credits, and state-specific rates from Arizona to Maine.
2026 rates from DOL WHD and Ogletree state updates. Seven states prohibit tip credits entirely.
Average tips per hour actually received by the employee.
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Introduction
The federal tipped minimum wage has been $2.13 per hour since 1991, and it has not moved since. What has changed is the patchwork of state laws on top of it. The U.S. Department of Labor WHD lists the federal maximum tip credit at $5.12 against the $7.25 federal minimum, but seven states prohibit tip credits entirely (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington), requiring employers to pay the full state minimum wage before tips. Another group of states set cash wages above the federal $2.13: Arizona requires $12.15 cash against a $15.15 minimum, New York requires $10.00 cash against a $15.00 minimum, and Virginia requires $2.13 cash but allows a $10.64 tip credit against its $12.77 minimum. Ogletree 2026 minimum wage updates show 19 states increasing rates in January 2026. This calculator applies the 2026 state cash wage, tip credit, and minimum wage to show the employer hourly cost, the makeup pay obligation when tips fall short, and the weekly and monthly labor cost.
What This Calculator Does
This tool calculates the employer tip credit, makeup pay obligation, and total hourly labor cost for tipped employees. You select a state or jurisdiction (which loads the 2026 minimum wage, required cash wage, and maximum tip credit), enter the hours per week and the actual tips per hour the employee receives. The calculator computes the cash wage paid, the tip credit claimed, whether total earnings meet the minimum wage, the makeup pay required if they do not, and the total hourly, weekly, and monthly cost to the employer. It flags compliance conditions like the $30 monthly tip threshold and tip retention rules.
The Formula
The cash wage is the direct hourly wage the employer must pay the tipped employee before tips, set by state law. The tip credit is the amount the employer may subtract from the minimum wage using the employee tips, capped at the state maximum. The makeup pay is the extra cash the employer must add when cash wage plus actual tips fall below the minimum wage, calculated per pay period. In no-tip-credit states, the cash wage equals the full minimum wage and the tip credit is zero, so tips are additional to the minimum wage rather than offsetting it. The $30 monthly tip threshold is the federal definition of a tipped employee, and the employer must inform the employee of the tip credit provision in writing to claim it.
Step-by-Step Example
Select your state
A Florida restaurant selects Florida, which loads a $13.20 minimum wage, $9.98 cash wage, and $3.22 tip credit.
Enter hours and actual tips
A server works 40 hours per week and averages $15 per hour in tips.
Review the calculation
Cash wage: $9.98/hr. Tips: $15/hr. Total earnings: $24.98/hr, which exceeds the $13.20 minimum. No makeup pay required. Employer hourly cost: $9.98. Weekly cost: $399.20. Monthly cost: about $1,730.
Check the shortfall scenario
If tips drop to $2/hr on a slow week, total earnings fall to $11.98, below the $13.20 minimum. The employer must make up $1.22/hr, raising the hourly cost to $11.20 for that week.
Real-World Use Cases
Restaurant Payroll Budgeting
A multi-location restaurant group calculates the tipped labor cost across states with different cash wage and tip credit rules, building an accurate payroll budget that accounts for makeup pay obligations on slow weeks.
Makeup Pay Tracking
A restaurant owner tracks actual tips per hour per server to identify when cash wage plus tips falls below the state minimum, triggering the makeup pay obligation that must be paid in the same pay period.
Multi-State Expansion Planning
A restaurant expanding from a tip credit state like Texas ($2.13 cash wage) to a no-tip-credit state like California ($15.00+ cash wage) models the labor cost difference to adjust menu pricing and staffing levels.
Common Mistakes to Avoid
Assuming the federal $2.13 cash wage applies everywhere. It does not. Seven states prohibit tip credits entirely and require the full state minimum wage before tips. Many others set cash wages above $2.13. Applying the federal rate in a higher-cash-wage state creates an underpayment violation and back wage liability.
Forgetting the makeup pay obligation. When actual tips plus the cash wage fall below the minimum wage in a given pay period, the employer must make up the difference. This is not optional. Failing to track tips per hour per employee and pay makeup wages is one of the most common FLSA violations in the restaurant industry.
Calculating makeup pay over a longer period than the pay period. The FLSA requires the makeup pay calculation to be done per pay period, not averaged over a month or quarter. A server who earns below minimum in one week cannot have that shortfall offset by a strong week in the same pay period if they are separate pay periods.
Ignoring the $30 monthly tip threshold. The tip credit only applies to employees who customarily and regularly receive more than $30 per month in tips. Below that threshold, the employee is not a tipped employee under the FLSA and must receive the full minimum wage with no tip credit.
Failing to provide written tip credit notice. To claim the tip credit, the employer must inform the employee in writing of the tip credit provision, including the cash wage paid, the tip credit claimed, and the requirement that all tips be retained by the employee except for valid tip pools. Without this notice, the employer may lose the right to claim the tip credit and owe the full minimum wage.
Frequently Asked Questions
What is the federal tipped minimum wage in 2026?
The federal tipped minimum cash wage remains $2.13 per hour with a maximum tip credit of $5.12 against the $7.25 federal minimum wage. These rates have not changed since 1991 and 2009 respectively. However, many states require higher cash wages, and seven states prohibit tip credits entirely, requiring the full state minimum wage before tips.
Which states do not allow a tip credit?
Seven states prohibit tip credits entirely: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. In these states, employers must pay the full state minimum wage before tips, and tips are additional to the minimum wage rather than offsetting it. Several cities within tip credit states also prohibit the practice.
What is makeup pay and when is it required?
Makeup pay, also called a tip credit shortfall, is the extra cash an employer must pay when an employee cash wage plus actual tips do not reach the minimum wage in a given pay period. The employer must make up the difference so the employee receives at least the minimum wage for every hour worked. This must be calculated per pay period, not averaged over time.
Can employers keep employee tips?
No. Under the FLSA, employers cannot keep tips received by employees, including credit card tips, except for valid tip pools among tipped employees. The 2018 tip rule clarification extended this protection to all employees, including those who do not customarily and regularly receive tips, when no tip credit is claimed. Tip pooling arrangements must also comply with state law.
How do 2026 state minimum wage increases affect tipped employees?
Nineteen states increased minimum wage rates on January 1, 2026, per Ogletree tracking. In tip credit states, the minimum wage increase often raises both the minimum wage and the required cash wage, with the tip credit adjusting accordingly. In no-tip-credit states, the full minimum wage increase flows directly to tipped employees as a cash wage increase. Check your state specific rates effective January 1, 2026.
Accuracy and Disclaimer
This calculator applies 2026 state tipped minimum wage, cash wage, and tip credit rates from the U.S. Department of Labor Wage and Hour Division and Ogletree 2026 state updates. State and local rates change periodically, and many cities and counties set higher minimum wages than their state. The $30 monthly tip threshold, written tip credit notice requirement, and tip retention rules are federal FLSA requirements that apply in all states. This is not legal advice. Verify current rates with your state labor department and consult an employment attorney for guidance on your specific jurisdiction and pay practices.
Conclusion
Tip credit compliance is a state-by-state calculation, not a federal one, and the seven no-tip-credit states change the math entirely. Run the numbers here for each state you operate in, track actual tips per hour per employee to catch makeup pay obligations early, and keep written tip credit notices on file. Pair this with our Labor Cost Percentage Calculator to fold tipped labor cost into your total restaurant prime cost, and the Restaurant Prime Cost Calculator to benchmark against the 55% to 65% industry standard.
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