What a tip credit is
A tip credit lets an employer count some of your tips toward its minimum-wage obligation. Instead of paying the full minimum wage in cash, the employer pays a lower direct cash wage and "credits" your tips to cover the gap. Under federal law, the direct cash wage can be as low as $2.13 per hour, as long as your tips bring you up to at least the full federal minimum of $7.25.
The make-up rule protects your total
The tip credit has a hard limit: it can never leave you below minimum wage overall. If your cash wage plus tips falls short of the full minimum wage in a pay period, the employer must make up the difference. The credit is a bookkeeping mechanism for how the minimum wage is funded, not a license to pay you less than the minimum.
There are also conditions: the employer generally must tell you it is taking a tip credit, you must actually keep your tips (outside a valid tip pool), and the credit only applies to genuinely tipped work.
The states that ban the tip credit entirely
This is the big state divergence. A group of states does not allow a tip credit at all — the employer must pay the full state minimum wage in cash, and tips are entirely on top:
- California, Washington, Oregon, Alaska, Nevada, and Montana are the core no-tip-credit states.
In these states, a tipped worker's minimum cash wage is the same as everyone else's. That is why the Alaska and other west-coast calculators treat tipped and non-tipped workers identically — there is no lower tipped wage to compute.
States with their own tip-credit amounts
Between the federal $2.13 floor and the full-wage states, many states set their own tip-credit figures — a specific maximum credit and a specific adjusted cash wage. Hawaii is an example where a defined tip credit exists with published dollar amounts and a combined wages-plus-tips threshold that must be met. The Hawaii tip credit calculator works through those figures with the source. Where a state's tip-credit amount has not been independently verified, this site deliberately shows no dollar figure rather than guessing.
Find your state's rule
Because the tip credit ranges from "banned" to "$2.13 cash wage" depending purely on the state, start from the states directory and open your state. If tips are part of your pay, this is one of the rules where the state answer matters most.