Tip Credit Rules by State for Restaurants

How the federal tip credit works

The math has three pieces:

A few conditions come with taking the credit. Before taking it, the employer has to tell the employee that a tip credit applies and how much it is (29 CFR 531.59). The employee has to keep all their tips except for a valid tip pool. And if state law sets a higher cash wage or a smaller credit, state law wins.

States that don’t allow a tip credit at all

Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington require the full state minimum wage in cash, with tips paid completely on top. There’s no federal-style math to do in these states: a tipped employee’s hourly wage has to clear the same minimum wage bar as anyone else’s, and tips are theirs in addition. Minimum wage rates in these states change at least once a year, so check the current rate with your state labor department or the U.S. Department of Labor’s tipped wage map rather than relying on a number printed somewhere else.

Everywhere else: a credit, but rarely the bare federal minimum

Most states allow a tip credit but set their own cash wage floor, usually higher than the federal one, plus their own maximum credit. Once state law is layered on, the federal $2.13 rarely applies in practice. A growing number of cities go further than their state, too, so a restaurant with locations in different cities inside the same state can face different tipped cash wages block by block.

The “dual jobs” question

A server who spends part of a shift rolling silverware or wiping down the salad station is still doing tip-supporting work, and the tip credit still applies. Where this gets legally uncertain is a bright-line test for how much non-tipped work is too much. The Department of Labor tried to set one (a rule commonly called “80/20/30”) in 2021, but the Fifth Circuit vacated it in 2024 and DOL formally withdrew it that December. Today the older, less specific “dual jobs” standard is back in force: the credit applies while an employee is doing tip-producing work or work that reasonably supports it, without a fixed percentage or minute count in federal regulation. This is an unsettled area, so if a role spends a large share of shifts on non-tipped tasks, get current advice rather than relying on an old percentage rule of thumb. It’s moot in the seven states above, since none of them allow a tip credit to begin with.

What this means for setting up payroll