Federal tip credit $2.13 cash wage.

The formula

29 CFR 531.59(a) says the employer's pay is increased on account of tips by an amount equal to the federal minimum wage under section 6(a)(1) of the Act minus the cash wage paid, which must be at least $2.13, provided the employer meets all requirements of section 3(m)(2)(A). Section 6(a)(1)(C) of the FLSA (29 U.S.C. 206) sets the federal minimum wage at $7.25 an hour. So the maximum tip credit is $7.25 - $2.13 = $5.12 per hour. A higher cash wage lowers the credit one dollar for one dollar.

Conditions the employer must meet (531.59(b))

• Advance notice. The employer must tell tipped employees in advance of using the tip credit: the cash wage to be paid; the additional amount counted as tip credit, which may not exceed the tips actually received; that all tips must be kept by the employee except for a tip pool limited to employees who customarily and regularly receive tips; and that the credit does not apply to anyone who was not told these things.
• Tipped employee. The credit applies only for hours worked in an occupation in which the employee qualifies as a tipped employee (531.51).
• Proof of tips. To take the maximum credit the employer must show the employee received at least that amount in actual tips. If tips fall short, the employer pays the balance so wages plus tips equal at least the minimum wage.
• Keep tips. Employers that take a tip credit must let employees keep all tips, apart from a valid tip pool (531.54).
• Less is allowed, more is not. The credit claimed may be less than the maximum, never more.

Worked example

An employer pays a $2.13 cash wage. The maximum credit is $5.12. If the employee averages $3.00 an hour in tips in a workweek, the credit is $3.00 and the employer owes a $2.12 top-up, so the employee gets $2.13 + $3.00 + $2.12 = $7.25 an hour. If tips average $9.00 an hour, the credit is capped at $5.12 and no top-up is owed, though the employee still keeps all of the tips.

Limits

This page uses the federal minimum wage of $7.25. Many states and cities require a higher minimum cash wage or ban the tip credit, and the higher rule applies where it exists. For overtime for tipped employees, see the tip credit overtime calculator linked below. The calculator treats tips as an hourly average, and the real rule is applied per workweek.

Sources

• 29 CFR 531.59 The tip wage credit: the formula, the $2.13 cash wage, notice and tip retention. Read November 2, 2026.
• 29 U.S.C. 206 Minimum wage (Cornell LII copy of the U.S. Code): section 6(a)(1)(C): $7.25 an hour. Read November 2, 2026.

Regulation text is the eCFR version current to October 29, 2026. The $7.25 figure is from 29 U.S.C. 206(a)(1)(C) as shown by Cornell LII on the date read.