Federal law lets an employer pay tipped staff a cash wage of $2.13 an hour and count tips toward the rest, a credit of up to $5.12. If tips do not bring you to at least $7.25 for the week, the employer must make up the shortfall. Eight states — Alaska, California, Hawaii, Minnesota, Montana, Nevada, Oregon and Washington — allow no tip credit at all.
The mechanism
The employer pays a reduced cash wage and claims a credit against the minimum for tips you receive. The credit is capped, and the arithmetic is checked against the full minimum. The obligation to make up any shortfall is the employer’s, not yours, and it is the part most often ignored.
What the employer must do to claim it
Tell you in advance that a tip credit is being taken, and how much. Let you keep your tips, subject only to a valid tip pool among staff who customarily receive tips. Managers and supervisors may not take from that pool. Where any of those conditions fails, the credit is not available and the full minimum is owed in cash.
The eight states with no credit
Alaska, California, Hawaii, Minnesota, Montana, Nevada, Oregon and Washington require the full state minimum as cash before a single tip. In those states a tipped worker’s floor is among the highest in the country; in a $2.13 state it is the lowest.
Several other states sit in between with their own cash minimums above $2.13, and a few cities have phased their tipped subminimum out entirely — Flagstaff, Arizona completed a decade-long phase-out at the start of 2026.
Where it goes wrong in practice
Slow weeks where the shortfall is never made up. Time spent on side work that produces no tips. Tip pools that quietly include a supervisor. Each of these is a wage claim, and each is far easier to prove with your own record of hours and tips than without.
Tax is a separate question
Recent federal changes to how tip income is taxed do not change the wage floor. A deduction alters what you owe at the end of the year; it does not raise the cash your employer must hand over each week.
Common questions
What is the federal tipped minimum?
A cash wage of $2.13 an hour with a tip credit of up to $5.12, provided your tips bring you to at least the full minimum.
What if my tips fall short?
The employer must make up the difference for that period. The obligation is theirs and it is the part most often missed.
Which states ban the tip credit?
Alaska, California, Hawaii, Minnesota, Montana, Nevada, Oregon and Washington require the full minimum in cash before tips.
Can a manager share my tip pool?
No. Managers and supervisors may not take from a tip pool, and an invalid pool can cost the employer the credit entirely.
Does the tax change on tips raise my wage?
No. A tax deduction changes what you owe at year end. It does not change the cash wage your employer must pay.