A tip is a gratuity, usually in cash, given by a customer to a service worker for work performed (such as a waitress or hospitality worker). The gratuity can be any denomination to qualify as a tip.

What are the qualifications of a tipped employee?

Any employee who works in an occupation where they regularly receive more than $30 in tips monthly. Such occupations include restaurant waitstaff, hotel bellhops, bartenders, delivery drivers, and other individuals who receive tips for their services.

What is the lowest minimum wage for tipped employees?

Tipped employees must make a minimum of $2.13 per hour plus tips. This is the federal tipped minimum wage requirement. In addition, wages plus tips must equal the federal regular minimum wage of $7.25 per hour, unless your state has a higher minimum wage in place.

Tipped Minimum Wage: What It Is & Rates by State

Tipped minimum wage is the lowest amount that businesses, like restaurants and resorts, can pay their tipped employees. Currently, the federal tipped minimum wage is $2.13 per hour, but each state has its own regulation.

The tipped minimum wages paid by the employer plus the tips received need to equal at least the full minimum wage when combined (the federal minimum wage is currently $7.25 an hour; states vary). Otherwise, employers are responsible for making up the difference. Paying tipped minimum wage can save money, but calculations can be time-consuming, and participating employers are subject to oversight.

How Tipped Minimum Wage Works

Tipped minimum wage allows tipped employees to be paid at a lower rate by their employer. Per federal law, tipped employees are workers who regularly receive more than $30 a month in tips.

Employees who would be considered “tipped employees” include, but are not limited to:

Waitstaff: Waitstaff includes the servers (waiters and waitresses) who take food and drink orders and deliver them to customers.
Bartenders: Bartenders typically work behind the bar serving alcoholic beverages.
Valet parking attendants: Valet parking attendants provide a parking service to incoming customers, usually at a high-end restaurant or hotel.

Although there are other employee types, such as cooks and hosts, who may regularly receive tips as part of a tip-sharing program, you aren’t allowed to pay them a tipped employee minimum wage.

If you have tipped employees and are in a state that follows the federal minimum wage, you can apply a federal tax credit of up to $5.12 per hour to reduce their hourly cash rate paid. This equals a federal minimum tipped wage of $2.13 per hour ($7.25 – $5.12). Many states have their own maximum credit against that minimum wage that determines how much of an employee’s income can be made up of tips. You’ll have to account for this in your employees’ pay and may change how you do payroll.

Maximum Credit Against Minimum Wage: The maximum amount that an employer may have to pay if an employee’s tips aren’t enough to get their salary to the state’s minimum wage. This amount can be computed by using the formula (State Minimum Wage – Tipped Minimum Wage).

Tipped employees are responsible for tracking and reporting tips received from all sources, and you’re required to report the information to the IRS. Any errors, whether intentional or not, can lead to penalties and unexpected taxes for violation of payroll compliance laws.

Remember, the $2.13 tipped workers minimum wage only relates to federal law; as shown below, many states have their own tipped minimum wage laws in place. When faced with conflicting federal, state, and local wage laws, always abide by the ones that give employees the most protection.

State-by-State Tipped Minimum Wage

There’s no standard tipped employee minimum wage for each state. States like Texas and Georgia don’t have any specific wage laws for tipped employees and follow the federal rate. Some states (Florida and Colorado, for example), have tipped minimum wage rates higher than the $2.13 federal rate, while Montana, Nevada, and other states don’t allow paying a tipped minimum wage, requiring employers to pay the full state minimum wage.

Several states have again increased their minimum wage for 2024. The following states have made changes to their tip credit and wage laws as well:

District of Columbia is gradually removing the tip credit by 2027 (per Initiative 82, passed November 2022).
Louisiana has had several proposals put forward to raise the minimum wage, but none are in effect yet.
Oregon’s minimum wage depends on your county; consult the Oregon state website for details.
Pennsylvania has ruled that an employer can only take a tip credit for employees who make at least $135 per month in tips.

Click on any state in the map below to view the tipped minimum wage and max credit against the minimum wage for that state.

Tipped Minimum Wage Clickable State Map

State-by-State Tipped Minimum Wage

SELECT A STATE IN THE US

Tip: It’s important to note that some cities have a minimum wage that is different from the state-mandated minimum (like New York, for example). Be sure to verify your state and local minimum wages before issuing any payments to your staff.

Related Laws for Tipped Minimum Wage

Paying your state’s tipped minimum wage subjects you to potential oversight in reporting. You’re responsible for notifying all new hires of your tip credit policies before they begin working. In addition, federal law requires that you withhold payroll taxes from all tips, whether received in cash, by credit card, or other means. This leads to additional reporting responsibilities for your employees, who must be honest about the tips they receive directly from customers.

Keep in mind that although your state may give you the