Tip Credit Wage Calculator
Under the federal Fair Labor Standards Act, employers may pay tipped employees a lower direct cash wage and count a portion of their tips, the tip credit, toward the minimum wage. This calculator works out the required cash wage by subtracting the tip credit from the applicable minimum wage. Enter the minimum wage that applies and the tip credit the employer takes, and the tool returns the cash wage the employer must pay directly, plus the share of the minimum wage covered by tips. Under federal rules the minimum wage is 7.25 and the maximum tip credit is 5.12, leaving a cash wage of 2.13, the defaults here. Seeing the cash wage and tip credit side by side shows how the two combine to reach the minimum wage and where a worker's pay floor sits before tips. Both inputs are editable because many states set a higher minimum wage or a smaller tip credit, and some bar it entirely. The employer must still ensure tips plus cash wage reach the full minimum wage. The US Department of Labor administers these rules. Every figure here is computed deterministically from the formula shown in full below, with a worked example that reconciles exactly to the calculator so you can follow each step.
The tipped cash wage is the floor minus the tip credit: cash wage = minimum wage minus tip credit. At a $7.25 minimum wage with a $5.12 tip credit, the required cash wage is $2.13 an hour.
Tip Credit Wage formula
Cash wage = Minimum wage - Tip credit
Minimum wage = the applicable federal or state floor
Tip credit = the per-hour tip amount counted toward the minimum (federal maximum 5.12)
The employer must still ensure cash wage plus tips reaches the full minimum wage
The federal cash wage floor for tipped workers is 2.13, the result of a 7.25 minimum wage minus the maximum 5.12 tip credit; states may require more.
Worked example
Find the required cash wage at the federal 7.25 minimum wage with the maximum 5.12 tip credit.
- Subtract the tip credit: 7.25 - 5.12 = 2.13
- Required cash wage = 2.13 per hour
- Share covered by tips: 5.12 / 7.25 = 70.62%
These are the calculator's default inputs, so the result above matches the widget exactly.
Tip Credit Wage Calculator: frequently asked questions
What is a tip credit?
A tip credit lets an employer count part of an employee's tips toward meeting the minimum wage, so the employer can pay a lower direct cash wage. The cash wage plus tips must still equal at least the full minimum wage.
What is the federal tipped cash wage?
Under federal law the minimum cash wage for tipped employees is 2.13 an hour, which is the 7.25 federal minimum wage minus the maximum allowable tip credit of 5.12. Many states require a higher cash wage.
What if tips do not reach the minimum wage?
If an employee's cash wage plus tips falls short of the full minimum wage in a workweek, the employer must make up the difference. The tip credit cannot reduce a worker's effective pay below the minimum wage.
Do all states allow the tip credit?
No. Several states do not permit a tip credit and require employers to pay the full state minimum wage before tips. Others allow a smaller credit than the federal maximum. Enter the figures that apply where you work.
What is the tip credit wage formula?
Cash wage equals the minimum wage minus the tip credit. At a 7.25 minimum wage with a 5.12 tip credit, the required cash wage is 2.13.
Official sources
- US federal payroll, withholding and reimbursement guidance: US Internal Revenue Service (IRS). As at 25 June 2026.
Reviewed by the CalculatorHub team, edited by James Graham, 25 June 2026. See our methodology. This is general information, not financial, tax, legal or investment advice.