Tipped work pays two numbers, not one: the cash wage on your paycheck and the average value of your tips. This calculator merges them into a single effective hourly wage, runs the federal and state minimum-wage floor test week by week, and shows the employer top-up owed whenever a slow shift drops you below the floor.
Two quick questions — they change whether the $5.15 federal floor applies to you.
Situation: You wait tables in Texas, paid $2.13/hour cash wage. You work 30 hours and collect $420 in tips, tipping out 20% ($84) to the bar and busser.
Federal floor test: Cash wage $2.13/h plus retained tips $11.20/h = $13.33/h, well above the $7.25 federal minimum. The employer may lawfully take the full $5.12 tip credit.
Takeaway: Your headline rate of $2.13 is meaningless — the relevant number is $13.33, and that is the figure to compare against other job offers.
Situation: Same server, but a bad 20-hour week with only $90 in tips and no tip-out.
The problem: $2.13 cash + $4.50 in tips per hour = $6.63/h, which is below the $7.25 federal minimum. The employer owes the difference.
The fix: The employer must pay an extra $0.62 per hour — $12.40 for the week — so total hourly earnings reach $7.25. This top-up is required by federal law, not a favor.
Situation: A barista in California earns the full $16.50 state minimum wage and collects $150 in tips over 25 hours.
The rule: California, Washington, Oregon, Nevada, Alaska, Montana and Minnesota prohibit the tip credit entirely. Tips are in addition to the full minimum wage and cannot offset it.
Result: Effective wage is $16.50 + $6.00 = $22.50/h. Choosing "full minimum wage" in the calculator keeps the floor check comparing $16.50 against the state's own minimum, not $7.25.
Cash wage = the hourly rate on the paycheck, excluding tips
Retained tips = gross tips minus tip-out/tip-pool contributions
Floor = $7.25/h federal, or the state minimum in a no-tip-credit state
Shortfall = max(0, Floor − (cash + tips per hour)) × Hours
| State | Tip Credit Allowed? | Minimum Cash Wage | Tips Count Toward Minimum? |
|---|---|---|---|
| Federal (FLSA) | Yes | $2.13 | Yes — up to $5.12 |
| California | No | Full state minimum | No — tips are extra |
| Washington | No | Full state minimum | No — tips are extra |
| Oregon | No | Full state minimum | No — tips are extra |
| Nevada | No | Full state minimum | No — tips are extra |
| Alaska | No | Full state minimum | No — tips are extra |
| Montana | No | Full state minimum | No — tips are extra |
| Minnesota | No | Full state minimum | No — tips are extra |
A seventh state, Alaska, was the first to repeal its tip credit; Montana repealed it by ballot initiative. Always confirm against your state labor department before relying on these figures.
When you take a paid day off, most employers pay only your cash wage — not your average tip earnings. For a server at $2.13/hour with $15/hour in average tips, a paid 8-hour day is worth $17.04 instead of $136.32. That is 87% less than a normal shift. Before comparing a tipped job to a salaried one, ask whether PTO is paid at the cash wage or at a blended average — the answer can move the effective value of the benefits package by thousands of dollars a year.
Ask this in the interview: "If I take PTO, is it paid at my base cash wage or at my average hourly earnings including tips?"
In most U.S. states, an employer may count the tips you receive toward its minimum-wage obligation. That discount is called the tip credit. Under the Fair Labor Standards Act the cash wage floor for tipped employees is $2.13 per hour, and the employer is permitted to take a credit of up to $5.12 per hour — the difference between $2.13 and the current $7.25 federal minimum wage.
The critical, and widely misunderstood, part is that the tip credit is conditional and revocable. Three things must all hold:
This calculator runs that floor test for every pay period you enter, which is the only reliable way to know whether you are being paid correctly. A single slow week — a snowstorm, a kitchen closure, a section cut early — is enough to put you under the floor even if your monthly average looks fine, because the test is applied week by week, not averaged across a month.
The single most useful output of this calculator is the effective hourly wage: what you actually take home per hour worked. Compare the two structures side by side at the same hourly cash rate:
Cash wage $10.98/h plus $6.00/h in retained tips = $16.98/h effective. Higher upside on busy nights, but income swings 40–60% between peak and off-peak, and PTO is usually paid at $10.98/h only.
Identical headline rate with no variance. Paid holidays, PTO and overtime all compute off the same number, and there is no tip-out leakage, no slow-week risk, and no dependence on the employer correctly applying the tip credit.
To match a flat wage of $16.98/h from a $10.98 cash wage, you need $6.00/h in retained tips — about $192 per 32-hour week. Below that rate the tipped job pays less in total, even though the headline rate looks the same.
Tips reported only on paychecks are taxed automatically; cash tips you record yourself are your responsibility. Under-withholding on tips is the most common cause of an April tax bill for tipped workers.
Tip income is taxable, and record-keeping is the employee's legal obligation. If you receive $20 or more in tips in any month while working for one employer, you must report them to that employer on IRS Form 4070 by the 10th of the following month. The employer then withholds income tax and FICA on the reported amount and reports it on your W-2.
Keep a daily log of tips received, tip-out paid, and hours worked. A monthly total is not good enough if you ever need to challenge an employer over the tip credit — the FLSA test is weekly. The calculator above accepts any period length for exactly that reason: enter your pay period and read the effective wage and floor status for that period alone.
⚠️ Important Disclaimer: State minimum wages and tip-credit rules change every January and several states are mid-phase-in. These figures are 2025 reference values for estimation only and are not legal advice. Confirm your applicable rate with your state labor department or the U.S. Department of Labor Wage and Hour Division before relying on any figure here.