Tip credit by state, and the federal rules underneath it
Seven states do not allow a tip credit at all. The federal floor has been $2.13 since 1991. The 80/20 rule that governed side work was vacated in 2024 and a lot of published guidance has not caught up.
Judd Alsup and the Equip Payment Solutions team, who install and support restaurant POS systems nationwide and sell Shift4 Dine and Clover.Updated August 9, 2026. Sources and dates cited on every figure.
The short answer
Tip credit, in one box:
- The federal cash wage is $2.13 with a maximum tip credit of $5.12, reaching the $7.25 federal minimum. Set by FLSA section 3(m)(2)(A).
- Seven states allow no tip credit Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington require the full state minimum before tips.
- A tipped employee federally is one who customarily and regularly receives more than $30 a month in tips.
- The 80/20 rule is not in force the 2021 dual jobs rule was vacated in 2024 and the Department restored the original regulation.
- Managers may never take from a tip pool whether or not the employer takes a tip credit. 29 CFR 531.54(c)(3) and (d).
The rest of this page is the case for each line, with sources.
What a tip credit is, and the arithmetic that decides whether you owe more
A tip credit lets an employer count a portion of an employee's tips toward its minimum wage obligation. Federally the employer pays a cash wage of $2.13 an hour and claims up to $5.12 in tips as a credit, reaching $7.25. The credit is authorised by FLSA section 3(m)(2)(A) and the regulations sit at 29 CFR Part 531, Subpart D, with recordkeeping at 29 CFR 516.28.
The obligation the credit does not remove is the floor. The Department of Labor states it plainly: an employer claiming a tip credit must ensure the employee receives enough tips from customers, plus direct cash wages, to equal at least the minimum wage and any overtime required under the FLSA, in each workweek. A slow Tuesday that leaves a server short is the employer's problem to make up, and the calculation is per workweek rather than per shift or per pay period.
This is a payroll question that lands on the point of sale, because the tip data the payroll system needs comes out of the POS. Declared cash tips, charged tips, tip outs to bar and bussers, and hours by job code all have to leave the POS in a shape the payroll system can use. A room running two job codes for the same person, a server who also runs the bar for two hours, is where most of the arithmetic errors we see actually originate.
Tipped minimum cash wage by state
| State | Cash wage | Max tip credit | Full minimum |
|---|---|---|---|
| No tip credit permitted | |||
| Alaska | $14.00 | None | $14.00 |
| California | $16.90 | None | $16.90 |
| Minnesota | $11.41 | None | $11.41 |
| Montana (sales above $110,000) | $10.85 | None | $10.85 |
| Nevada | $12.00 | None | $12.00 |
| Oregon (statewide standard) | $15.55 | None | $15.55 |
| Washington | $17.13 | None | $17.13 |
| Federal floor states, cash wage $2.13 | |||
| Alabama, Georgia, Indiana, Kansas, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Utah, Wyoming | $2.13 | $5.12 | $7.25 |
| Everywhere else | |||
| Arizona | $12.15 | $3.00 | $15.15 |
| Arkansas | $2.63 | $8.37 | $11.00 |
| Colorado | $12.14 | $3.02 | $15.16 |
| Connecticut (hotel and restaurant) | $6.38 | $10.56 | $16.94 |
| Connecticut (bartenders) | $8.23 | $8.71 | $16.94 |
| Delaware | $2.23 | $12.77 | $15.00 |
| District of Columbia | $10.30 | $8.10 | $18.40 |
| Florida (changes 30 Sept 2026) | $10.98 | $3.02 | $14.00 |
| Hawaii | $14.75 | $1.25 | $16.00 |
| Idaho | $3.35 | $3.90 | $7.25 |
| Illinois | $9.00 | $6.00 (40%) | $15.00 |
| Iowa | $4.35 | $2.90 (40%) | $7.25 |
| Maine | $7.55 | $7.55 (50%) | $15.10 |
| Maryland | $3.63 | $11.37 | $15.00 |
| Massachusetts | $6.75 | $8.25 | $15.00 |
| Michigan | $5.49 | $8.24 | $13.73 |
| Nebraska | $2.13 | $12.87 | $15.00 |
| New Hampshire | $3.27 | $3.98 | $7.25 |
| New Jersey | $6.05 | $9.87 | $15.92 |
| New Mexico | $3.00 | $9.00 | $12.00 |
| New York (NYC, LI, Westchester food service) | $11.35 | $5.65 | $17.00 |
| New York (rest of state, food service) | $10.70 | $5.30 | $16.00 |
| North Dakota | $4.86 | $2.39 (33%) | $7.25 |
| Ohio (gross receipts $405,000 or more) | $5.50 | $5.50 | $11.00 |
| Pennsylvania | $2.83 | $4.42 | $7.25 |
| Rhode Island | $3.89 | $12.11 | $16.00 |
| South Dakota | $5.93 | $5.92 (50%) | $11.85 |
| Vermont | $7.21 | $7.21 (50%) | $14.42 |
| Virginia | $2.13 | $10.64 | $12.77 |
| West Virginia (6 or more employees) | $2.62 | $6.13 (70%) | $8.75 |
| Wisconsin | $2.33 | $4.92 | $7.25 |
Source: US Department of Labor, Wage and Hour Division, Minimum Wages for Tipped Employees, last revised 1 July 2026, fetched 13 August 2026. The Department's own notice applies here: it tries to keep the table accurate but individuals should consult the relevant state labor office for official information. State agency pages were independently checked for California, the District of Columbia, Illinois and New York only. Local and municipal ordinances are excluded from this table and bind many restaurants in California, New York and Illinois. Florida's figures change on 30 September 2026 under its constitutional schedule.
Four state footnotes that change the answer
Oklahoma is inconsistent on the Department's own page
Oklahoma is filed under states requiring a cash wage above $2.13, yet its listed cash wage is $2.13. The footnote explains it: employers with ten or more full time employees at one location, or over $100,000 in gross sales, who are not covered by the FLSA may take a tip credit of no more than 50%, and state law excludes any employment subject to the FLSA. Do not restate Oklahoma as a flat $2.13 without that qualification.
North Carolina requires a signed certification
The tip credit is not permitted unless the employer obtains a signed employee certification of tips received, monthly or each pay period. A room that claims the credit without the paperwork has not validly claimed it.
Michigan is on an escalator
The tipped cash wage rises annually toward 50% of the minimum wage by 2031, and the state minimum goes to $15.00 on 1 January 2027. Any Michigan figure published without a date is wrong within the year.
Hawaii conditions the credit on a gap
The tip credit is available only if the employee's cash wage plus tips is at least $7.00 above the applicable minimum wage. It is a condition, not a rate.
The 80/20 rule, which most published guidance still gets wrong
If you have read that a tipped employee may spend no more than 20% of their time on side work, or no more than 30 continuous minutes on untipped duties, that guidance describes a rule that is no longer in force. The Department issued the 2021 dual jobs rule on 29 October 2021, revising 29 CFR 531.56(e), effective 28 December 2021. On 29 October 2024 a federal court vacated the revision, reinstating the Department's original dual jobs regulation. The case is Restaurant Law Center v. US Department of Labor, 115 F.4th 396 (5th Cir. 2024), superseded on rehearing at 120 F.4th 163. On 16 December 2024 the Department announced a technical rule restoring the original regulation.
What that leaves standing is the original dual jobs regulation, which still distinguishes tipped from non tipped occupations. What was vacated were the 2021 rule's specific tests, the 80/20 threshold and the 30 continuous minute limit. This is a distinction worth reading the current regulation for rather than taking anyone's summary, including this one: the operative text is at 29 CFR 531.56(e) and it is a short section.
Several states impose their own dual jobs standards independent of federal law, and the vacatur of the federal rule does not touch them. If you operate in more than one state, the side work question has to be answered per state rather than once.
Tip pooling: the rules that do not move
Managers and supervisors may never receive from a tip pool
This holds whether or not the employer takes a tip credit. 29 CFR 531.54(c)(3) and (d) both say the employer may not allow managers and supervisors to receive tips from the pool. Section 531.54(b)(1) is explicit that the prohibition applies regardless of the tip credit.
Managers may keep tips they earn directly and solely
A manager who personally and solely serves a table may keep the tip from that table, and managers are not prohibited from contributing into a pool. Receiving out of the pool is the prohibited direction.
If you take a tip credit, the pool is customarily tipped staff only
Only employees who customarily and regularly receive tips may be in it. You must notify employees of the required contribution amount, may take the credit only on what each employee actually receives, and may not retain any tips for any other purpose.
If you do not take a tip credit, back of house may be included
An employer paying full minimum wage may run a mandatory pool that includes dishwashers, cooks and other back of house employees. This is the single largest lever in the section and it is conditioned entirely on forgoing the credit.
There is no maximum contribution percentage
Section 3(m)(2)(A) does not impose one, per 29 CFR 531.54(a).
Distribute promptly
Tips collected for a pool must be fully distributed no later than the regular payday for the workweek in which they were collected, or as soon as practicable after it where amounts cannot be ascertained before payroll processing.
Employers may never keep employee tips
Under any circumstances, per the 2018 FLSA amendments. An employer not taking a credit but running a mandatory pool must keep payroll records identifying each employee who receives tips and the amount reported.
What to ask your point of sale about all of this
The compliance work is payroll's, but the data is the POS's, and a system that cannot produce it turns a solved problem into a monthly argument. Ask for four things specifically. Tips by employee by workweek, because the federal make up obligation is calculated per workweek and a system that only reports by pay period cannot answer the question. Hours by job code, because a server who bartends for two hours at a different rate has to be splittable. Tip out records showing what moved from whom to whom, because a pool you cannot reconstruct is a pool you cannot defend. And declared cash tips captured at clock out rather than reconstructed later.
Ask also whether the system can exclude a role from a pool by configuration. The manager prohibition is absolute, and the most common way it gets breached is not intent but a shift lead who is a supervisor for FLSA purposes sitting in the pool because nobody changed the role when they were promoted.
This page is a reference rather than advice, and wage and hour is the area where the gap between a reference and advice matters most. The figures are the Department of Labor's, dated, with its own caveat carried through. Before you change how you pay anyone, check your state agency and, for anything unusual, an employment lawyer. We would rather send you to one than have you rely on a table.
Questions owners ask
What is the federal tipped minimum wage?
A cash wage of $2.13 an hour with a maximum tip credit of $5.12, reaching the federal minimum of $7.25. It has been $2.13 since 1991. A tipped employee federally is one who customarily and regularly receives more than $30 a month in tips.
Which states do not allow a tip credit?
Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington require employers to pay the full state minimum wage before tips. The Department of Labor groups them under that heading on its own table.
Is the 80/20 rule still in effect?
No. The 2021 dual jobs rule containing the 80/20 and 30 continuous minute tests was vacated in Restaurant Law Center v. US Department of Labor in October 2024, and the Department restored the original dual jobs regulation in December 2024. A great deal of published guidance still describes the vacated rule. Several states impose their own standards, which the federal vacatur does not affect.
Can a manager be in the tip pool?
No, and this does not depend on whether you take a tip credit. 29 CFR 531.54 prohibits managers and supervisors from receiving tips from a pool in both the credit and no credit cases. A manager may keep a tip from a table they personally and solely served, and may contribute into a pool.
Can I include kitchen staff in a tip pool?
Only if you do not take a tip credit and pay the full minimum wage in cash. In that case 29 CFR 531.54(d) permits a mandatory pool including dishwashers, cooks and other back of house staff. If you take the credit, the pool is limited to customarily tipped employees.
How current are these figures?
The table is the Department of Labor's, last revised 1 July 2026 and fetched 13 August 2026. Florida's numbers change on 30 September 2026. Michigan is on an annual escalator. Local ordinances are not included and bind many restaurants. Confirm with your state labor office before you rely on any single line.
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