Tipped Employee Payroll & Tip-Credit Calculator

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Walk-through

How to Use This Calculator

5 steps

1

Pick your state

Choose the state (or DC) where the work happens. That sets the full minimum wage, the lowest legal cash wage, and the maximum tip credit — and flags the seven "One Fair Wage" states that ban the tip credit entirely. The cash-wage field auto-fills to your state's floor.

2

Enter the hours

Type the regular hours in the pay period (up to 40 a week) and any overtime hours over 40. Overtime is where tipped payroll most often goes wrong, so entering it lets the calculator show the correct tipped-overtime rate.

3

Add the cash wage and tips

Enter the direct cash wage the employer pays per hour and the total tips received in the period. The calculator computes the tip credit, checks whether cash wage plus tips reaches the full minimum, and flags any make-up the employer owes.

4

Set the tip-out

If tips are pooled or tipped out to bussers, bartenders, or a house pool, enter that percentage. It reduces the tips the worker keeps for the take-home view but does not change the employer's minimum-wage obligation.

5

Switch employer and employee views

Use the Employer view for the total wage cost and any required make-up, or the Employee view for take-home after tip-out, FICA, and income tax — including what the 2025 no-tax-on-tips deduction is worth. The tabs break down compliance, tipped overtime, and take-home.

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Reference

Formula & Methodology

4 formulas

Tip credit

tip credit = full minimum wage − direct cash wage (capped; $0 in no-tip-credit states)

The tip credit is the amount of tips an employer may count toward the minimum wage. It equals the full minimum minus the cash wage paid, but never more than the state allows — and it is zero in the seven states that ban the tip credit.

Required make-up

make-up = max(0, full minimum × hours − (cash wage × hours + tips))

For every pay period, cash wage plus tips must average at least the full minimum wage for the hours worked. If they fall short, the employer must make up the difference — the tip credit can never leave a worker below the minimum.

Tipped overtime

overtime cash rate = 1.5 × full minimum wage − tip credit

Overtime is owed on the full minimum wage, not the reduced cash wage. The overtime cash rate is time-and-a-half of the full minimum minus the same tip credit — so the employer keeps the tip credit on overtime hours but pays more cash than 1.5 × the cash wage.

Employee take-home

take-home = cash wages + tips retained − FICA (7.65%) − income tax (after tip deduction)

A worker's take-home is cash wages plus tips kept after tipping out, less FICA on wages and tips and estimated income tax. The 2025 no-tax-on-tips deduction lowers income tax on tips but does not touch the FICA that still applies to every tip dollar.

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YMYL

Trust, Methodology & Sources

Reviewed by Calculover Editorial Review · Updated 2026-07-12 · 5 sources

Editorial accountability

Author: Calculover Editorial Team - Wage & hour methodology — based on the Fair Labor Standards Act and U.S. DOL guidance

Owner: Calculover Editorial Standards - Reviews YMYL calculator outputs against authoritative government sources before publication

Reviewer: Calculover Editorial Review - Government-source and limitation review

Last reviewed: 2026-07-12

Last verified: 2026-07-12

Data effective: 2026-01-01

Methodology

The calculator applies the federal FLSA tip-credit rules — a $2.13 minimum cash wage, a $5.12 maximum tip credit, and the $7.25 federal minimum wage (29 U.S.C. §203(m), 29 CFR part 531) — together with a 50-state + DC table of 2026 tipped minimum wages and cash-wage floors from the U.S. Department of Labor Wage and Hour Division and state labor agencies. Make-up pay is computed per pay period as the full minimum wage times hours less cash wage times hours plus tips. Tipped overtime uses 1.5 times the full minimum wage minus the tip credit. The employee take-home view applies employee FICA at 7.65% to wages and tips and estimates income tax after the One Big Beautiful Bill Act (2025) no-tax-on-tips deduction of up to $25,000, with the $150,000 / $300,000 MAGI phase-out.

Assumption: State figures use the standard statewide 2026 tipped minimum wage; some cities and counties set higher local minimums and some states use tiered rates (bartenders vs. waitstaff), which are noted per state but not separately modeled.

Assumption: The tip deduction and income-tax estimate use a simplified marginal-rate model on annualized wages plus tips; they do not model the full federal bracket schedule, standard deduction, credits, or other household income.

Assumption: FICA is applied at the employee rate of 7.65% to cash wages and tips; state and local income taxes and any local payroll taxes are not included.

Assumption: Make-up pay is evaluated on the regular hours entered; overtime pay is computed separately at the tipped-overtime rate.

Limitations & guidance

This is an educational estimate, not payroll, legal, or tax advice, and it does not replace your state labor agency, a payroll provider, or a qualified professional.

Local minimum-wage ordinances (for example many cities in California, Illinois, Washington, and Maryland) can exceed the state figure and are not applied automatically.

Rules in flux — such as Michigan's court-ordered schedule and DC's Initiative 82 tip-credit phase-out — change during the year; verify the current rate before relying on it.

The dual-jobs / 80-20 rule, service-charge vs. tip distinctions, youth and training wages, and the Section 45B employer FICA tip credit are described but not computed.

The employee take-home figure is a rough net estimate; actual withholding depends on your Form W-4, filing status, other income, and deductions.

Professional guidance: This calculator is for general education only and is not legal, payroll, or tax advice. Tip-credit and minimum-wage rules are set by federal, state, and local law, change frequently, and depend on facts this tool cannot capture. Before setting pay, filing, or resolving a wage dispute, confirm the current rules with the U.S. Department of Labor, your state labor agency, and a qualified professional.

Primary sources

U.S. DOL Wage and Hour Division — Fact Sheet #15: Tipped Employees Under the FLSA

U.S. DOL Wage and Hour Division — Minimum Wages for Tipped Employees (state table)

29 CFR Part 531 — Wage Payments Under the FLSA (tip credit, tip pooling)

IRS — Tip Recordkeeping and Reporting (tips, FICA, and the Section 45B credit)

One Big Beautiful Bill Act (Pub. L. 119-21) — no-tax-on-tips deduction

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Glossary

Key Terms Explained

10 terms

Tip credit The portion of an employee's tips that an employer is allowed to count toward its minimum-wage obligation. Under federal law it can be up to $5.12/hr, letting an employer pay a $2.13 cash wage if tips make up the rest to $7.25.

Tipped minimum wage The minimum direct cash wage an employer must pay a tipped employee before tips — $2.13/hr under federal law, higher in most states, and equal to the full minimum wage in the seven no-tip-credit states.

Cash wage The hourly wage the employer actually pays a tipped employee, separate from tips. It must be at least the state's tipped-minimum cash wage and, combined with tips, reach the full minimum wage.

Make-up pay The extra the employer must pay when a tipped employee's cash wage plus tips falls below the full minimum wage for the hours worked. The tip credit can never reduce pay below the minimum, so the shortfall is the employer's to cover.

Tip pooling / tip-out An arrangement where tipped employees share tips with other staff (bussers, bartenders, runners). Valid pools may include only employees who customarily receive tips; managers, supervisors, and the employer cannot keep any share.

Tipped overtime Overtime pay for tipped employees, computed as 1.5 times the full minimum wage minus the tip credit — not 1.5 times the lower cash wage. Miscalculating this is one of the most common tipped-payroll violations.

FLSA The Fair Labor Standards Act, the federal law that sets the minimum wage, overtime rules, and the tip-credit provisions in Section 3(m). States may set higher standards, and the more protective rule applies.

FICA tip credit (Section 45B) A federal income-tax credit that lets food-and-beverage employers recover the employer share of Social Security and Medicare (FICA) taxes paid on employee tips above the amount treated as wages. It offsets the employer's payroll-tax cost of tips.

Dual jobs / 80-20 rule Guidance on when a tipped worker who also does non-tipped side work (rolling silverware, cleaning) can still be paid the tipped cash wage. Historically, if more than 20% of time is spent on non-tip-producing duties, the tip credit may not apply to that time.

No-tax-on-tips deduction A 2025 federal deduction (from the One Big Beautiful Bill Act) of up to $25,000 of reported tip income from taxable income for 2025–2028, subject to a MAGI phase-out. It reduces income tax only — Social Security and Medicare taxes on tips are unchanged.

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Scenarios

Real-World Examples

3 worked examples

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Texas server, a good night

Tips clear the minimum — no make-up

State Texas Hours 40 Cash wage $2.13/hr Tips $520

Tips averaged $13.00/hr, well above the $5.12 tip credit, so cash wage plus tips clears the $7.25 minimum and no make-up is owed. The employer pays just $85.20 in cash wages for the shift. In the Employee view the server nets about $544 after FICA and income tax, and the no-tax-on-tips deduction saves roughly $3,000 in income tax over the year.

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Slow shift, tips fall short

Employer owes make-up pay

State Texas Hours 40 Cash wage $2.13/hr Tips $80

Here $2.13 × 40 = $85.20 in cash plus $80 in tips is only $165.20 — below the $290.00 the full minimum requires for 40 hours. The employer must make up the $124.80 difference, bringing the shift to an effective $7.25/hr. This is the compliance step payroll tools that only withhold on tips silently skip.

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California, no tip credit

Full minimum paid in cash

State California Hours 40 Cash wage $16.50/hr Tips $520

California bans the tip credit, so the cash wage is forced to the full $16.50 state minimum — the employer pays $660 in cash wages for the shift and the $520 in tips belongs entirely to the server on top. There is never any make-up to compute in a no-tip-credit state, but the employer's cash cost is far higher than in a tip-credit state.

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Deep Dive

Tipped payroll: two things employers get wrong, and one thing workers want to know

3 chapters · 5 min read

Tipped pay is deceptively tricky. Employers trip on two rules — the state-by-state tip credit and how to compute tipped overtime — while workers just want to know what a shift is really worth after the new no-tax-on-tips deduction. This calculator handles both sides, state by state, in one place.

The tip credit, the cash wage, and make-up pay

Under the federal Fair Labor Standards Act, an employer can pay a tipped employee a direct cash wage as low as $2.13/hr and count up to $5.12/hr of tips toward the $7.25 minimum wage. That $5.12 is the "tip credit." But the credit has a hard floor: for every pay period, cash wage plus tips must average at least the full minimum for the hours worked. When they fall short — a slow shift, a bad section — the employer owes make-up pay to close the gap.

States change the math. Most set a higher minimum and a higher cash wage; seven states — Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington — ban the tip credit entirely, so tipped workers get the full state minimum in cash with tips on top. This tool loads the 2026 figure for whichever state you pick and computes the make-up automatically.

Tipped overtime is the sneaky one

The single most common tipped-payroll error is calculating overtime on the cash wage. Overtime is owed on the full minimum wage, not the reduced cash wage. The correct tipped overtime rate is 1.5 × the full minimum wage − the tip credit. Federally that's 1.5 × $7.25 − $5.12 = about $5.76/hr in cash — not 1.5 × $2.13 = $3.20. The employer keeps the same tip credit on overtime hours but must pay the higher cash amount. The Tipped Overtime tab shows the right number next to the wrong one so the gap is obvious.

What the worker keeps — and the new tip deduction

For employees, take-home is cash wages plus the tips you keep after any tip-out, minus FICA and income tax. Two things surprise people. First, FICA still applies to tips — Social Security and Medicare take 7.65% of your wages and tips no matter what. Second, the 2025 no-tax-on-tips deduction (up to $25,000 of tips deducted from taxable income for 2025–2028) lowers your income tax on tips but does nothing to that FICA. This calculator estimates both, and for the full income phase-out you can jump to the dedicated No Tax on Tips calculator. Treat the results as an educational estimate and confirm specifics with your state labor agency or a payroll professional.

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Questions

Frequently Asked Questions

8 questions

What is a tip credit?+

A tip credit lets an employer count a portion of an employee's tips toward the minimum wage. Under federal law the credit can be up to $5.12/hr, so an employer may pay a $2.13 cash wage as long as tips bring the total to at least $7.25/hr. If tips fall short, the employer must make up the difference.

What is the federal tipped cash wage?+

The federal minimum direct cash wage for tipped employees is $2.13/hr, with a maximum tip credit of $5.12/hr against the $7.25 federal minimum wage. Many states require a higher cash wage, and seven states require the full minimum wage in cash with no tip credit.

Which states ban the tip credit?+

Seven states do not allow a tip credit: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. In these "One Fair Wage" states, tipped employees must be paid the full state minimum wage in cash, and tips are kept entirely by the worker on top of that wage.

How is tipped overtime calculated?+

Tipped overtime is 1.5 times the full minimum wage minus the tip credit — not 1.5 times the lower cash wage. Federally that is 1.5 × $7.25 − $5.12 ≈ $5.76/hr in cash. The employer keeps the same tip credit on overtime hours but must pay the higher cash rate. Using the cash wage instead is a common violation.

What happens if tips fall short of the minimum wage?+

If an employee's cash wage plus tips does not average at least the full minimum wage for the hours worked in a pay period, the employer must pay make-up pay to close the gap. The tip credit can never leave an employee below the minimum wage — that shortfall is always the employer's responsibility.

Is tip pooling legal?+

Yes, with rules. A valid tip pool may include only employees who customarily and regularly receive tips, such as servers, bartenders, bussers, and runners. Managers, supervisors, and the employer cannot keep any portion of employees' tips, and mandatory pools cannot reduce a worker below the minimum wage.

Do tipped workers still pay tax on tips?+

Partly. FICA — Social Security and Medicare, 7.65% for the employee — applies to all reported tips and does not change. The 2025 no-tax-on-tips deduction lets eligible workers deduct up to $25,000 of tip income from taxable income for 2025–2028, which lowers income tax only, subject to a MAGI phase-out above $150,000 (single) or $300,000 (married filing jointly).

What is the Section 45B FICA tip credit?+

Section 45B is a federal income-tax credit for food-and-beverage employers. It lets the employer recover the employer share of Social Security and Medicare taxes paid on employee tips above the amount treated as wages, offsetting the payroll-tax cost of tips. It is claimed by the employer, not the employee.

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Tipped Employee Payroll & Tip-Credit Calculator

Employer cost this period

Pay composition & the minimum-wage check

Same shift, tip-credit state vs. no-tip-credit state

Tipped overtime is 1.5 × the full minimum, then minus the tip credit

What the worker actually keeps

Two sides of the same shift

How to Use This Calculator

Pick your state

Enter the hours

Add the cash wage and tips

Set the tip-out

Switch employer and employee views

Formula & Methodology

Trust, Methodology & Sources

Key Terms Explained

Real-World Examples

Texas server, a good night

Slow shift, tips fall short

California, no tip credit

Tipped payroll: two things employers get wrong, and one thing workers want to know

The tip credit, the cash wage, and make-up pay

Tipped overtime is the sneaky one

What the worker keeps — and the new tip deduction

Frequently Asked Questions

Get a branded PDF of your results

Tipped Minimum Wage by State

Tipped Employee Payroll & Tip-Credit Calculator

Employer cost this period

Pay composition & the minimum-wage check

Same shift, tip-credit state vs. no-tip-credit state

Tipped overtime is 1.5 × the full minimum, then minus the tip credit

What the worker actually keeps

Two sides of the same shift

How to Use This Calculator

Pick your state

Enter the hours

Add the cash wage and tips

Set the tip-out

Switch employer and employee views

Formula & Methodology

Trust, Methodology & Sources

Key Terms Explained

Real-World Examples

Tipped payroll: two things employers get wrong, and one thing workers want to know

The tip credit, the cash wage, and make-up pay

Tipped overtime is the sneaky one

What the worker keeps — and the new tip deduction

Frequently Asked Questions

Get a branded PDF of your results

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