Tipped Minimum Wage by State 2026: Cash Wages & the Tip Credit

Navigating the tipped minimum wage by state requires understanding the statutory divide between what employers are legally required to pay in direct cash wages and how tips bridge the gap to full minimum wage. While federal law sets a baseline cash wage of $2.13 per hour, state regulations vary dramatically—from jurisdictions allowing substantial tip credits to states that completely ban the practice, requiring full standard minimum wages before tips.

1. The Two Meanings of “Tip Credit”

When discussing tipped compensation, workers and employers frequently encounter the phrase “tip credit.” It is crucial to separate two entirely distinct statutory concepts that operate under different branches of government:

• (a) The Department of Labor (DOL) Wage Tip Credit: Governed by the Fair Labor Standards Act (FLSA 29 U.S.C. § 203(m)), this is a payroll wage provision. It allows an employer to satisfy their statutory minimum wage obligation by paying a reduced direct hourly cash wage (as low as $2.13 per hour under federal law) and counting a designated portion of the employee’s customer tips (up to $5.12 per hour federally) toward the remaining minimum wage requirement.
• (b) The OBBBA Federal Tax Deduction: Governed by the Internal Revenue Code (IRC § 224, enacted under the One Big Beautiful Bill Act of 2025), this is an annual income tax deduction. It allows eligible workers to deduct up to $25,000 of qualified tip income from their federal taxable income on IRS Form 1040 for tax years 2025 through 2028. This deduction changes nothing about an employer’s hourly wage obligations, does not alter weekly paychecks, and does not lower the employer cash wage floor.

Confusing these two concepts leads to widespread misunderstandings: the federal tax deduction does not lower employer wage obligations, and the employer wage credit does not exempt workers from paying income taxes on their tips.

2. How the Wage Tip Credit Works (Federal FLSA Mechanics)

The federal framework governing tipped employment was established under the Fair Labor Standards Act (FLSA) and is enforced by the U.S. Department of Labor (DOL) Wage and Hour Division (WHD). Under this statutory framework:

• Federal Minimum Wage: The standard federal minimum wage is $7.25 per hour.
• Federal Tipped Cash Wage Floor: An employer may pay a direct cash wage of no less than $2.13 per hour.
• Maximum Federal Tip Credit: The maximum credit an employer can claim against the federal minimum wage is $5.12 per hour ($7.25 standard wage minus $2.13 cash wage).
• Tipped Employee Definition: Under federal regulations, a tipped employee is an individual engaged in an occupation in which they customarily and regularly receive more than $30 per month in tips.
• The Mandatory Tip Make-Up Rule: Under federal law, the combination of direct cash wages and tips received across the employee’s workweek must equal at least the standard minimum wage rate ($7.25 per hour) for every hour worked. If an employee’s tips combined with their direct cash wage do not reach this total, the employer must pay the shortfall to ensure full minimum wage compensation.
• More Generous Standard Governs: Where state or local statutes mandate a higher minimum wage, a higher cash wage floor, or a lower tip credit than federal law, employers must comply with whichever standard provides the greater benefit and protection to the employee.

3. Tipped Minimum Wage by State (October 2026 Reference Table)

The following table provides the official state-level standard minimum wages, direct tipped cash wage floors, and maximum allowable tip credits across all 50 states and the District of Columbia. Every entry is verified against published releases from the U.S. Department of Labor Wage and Hour Division and respective state labor departments, current as of October 2026.

Note on Local Ordinances: The figures below reflect statewide statutory rates. Numerous municipalities and counties (such as Seattle, San Francisco, Chicago, New York City, and Flagstaff) enforce local minimum wage ordinances establishing higher cash wages or phased-out tip credits.

4. States with No Tip Credit

In most parts of the country, the minimum wage for servers by state permits employers to count tips toward their wage obligations. However, seven states have enacted statutes that strictly prohibit the tip credit:

5. The New Law for Tipped Employees (OBBBA IRC § 224 Deduction)

The new law for tipped employees refers to statutory provisions enacted under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. This legislation added Section 224 to the Internal Revenue Code (IRC § 224), establishing a temporary federal tax benefit commonly discussed as “no tax on tips.”

Understanding the exact legal boundaries of IRC § 224 is essential for tax planning:

• Deduction, Not an Exemption: IRC § 224 creates an above-the-line deduction, not a blanket tax exemption. Tipped employees must still accurately track and report all tip earnings to their employer on IRS Form 4070 and report total tip income on IRS Form 1040. The deduction is then claimed against gross income to calculate adjusted gross income.
• Annual Deduction Cap: Eligible taxpayers can deduct up to $25,000 of qualified tips per return per calendar year.
• Temporary Statutory Window: The deduction is authorized exclusively for tax years 2025 through 2028. Under statutory sunset rules, it expires after December 31, 2028 unless extended by Congress.
• Income Phaseout Ranges: The deduction begins phasing out at $150,000 of Modified Adjusted Gross Income (MAGI) for single filers and $300,000 for Married Filing Jointly (MFJ). The allowable deduction shrinks by $100 for every $1,000 of MAGI above the threshold, reaching complete phaseout at $400,000 for single filers and $550,000 for MFJ filers.
• Filing Status Exclusions: Taxpayers who are Married Filing Separately (MFS) are not eligible to claim the IRC § 224 tip deduction.
• FICA Payroll Taxes Still Apply: The deduction applies strictly to federal individual income tax. It does not exempt tip income from FICA payroll taxes: employees and employers must still pay full 6.2% Social Security tax and 1.45% Medicare tax on all reported tip earnings.
• State Conformity Varies: Enactment of the federal deduction does not automatically alter state income tax liability. Whether a state allows a corresponding tip deduction depends on its specific state rolling or fixed-date IRC conformity statutes.
• Qualified Tips Definition: The deduction applies only to voluntary tips received in cash or electronic equivalents by workers in traditionally tipped occupations (based on occupations customarily tipped as of December 31, 2024). Mandatory service charges, automatic gratuities, and administration fees do not qualify.

6. What This Page Is Not

To maintain authoritative educational clarity, this reference page is intentionally scoped as follows:

• Not an Interactive Calculator: While many search queries ask for a “tipped minimum wage calculator,” server pay math is fundamentally defined by the state statutory tables above. If you want to estimate your regular take-home earnings, federal income tax brackets, FICA payroll taxes, and state withholding, use our free paycheck tax calculator. Note that our paycheck tool models regular hourly and salaried compensation and does not compute variable tip credits or shortfall top-ups.
• State-Level Scope Only: This guide documents state and federal statutory baselines. It does not publish municipal, city, or county rates (such as Flagstaff, Seattle, or West Hollywood), which frequently adjust through local ballot measures.
• No Child Pages: All state rates are unified in the central reference table above to ensure users compare jurisdictions side-by-side without navigating 50 individual sub-pages.

8. Sources & Freshness Verification