Texas Tipped Minimum Wage 2026: What Every Restaurant Owner Must Know

• The Texas tipped minimum wage remains $2.13 per hour in 2026 -- the same rate it's been since 1991. Texas follows the federal FLSA standard exactly, with a maximum tip credit of $5.12.
• If your employee's cash wage plus tips doesn't hit $7.25 per hour for the workweek, you owe the difference out of pocket. No exceptions.
• New 2026 IRS reporting rules under the One Big Beautiful Bill Act (OBBBA) require Box 12 Code TP for qualified tips and a Treasury Tipped Occupation Code (TTOC) in Box 14b on every tipped employee's W-2. The 2025 grace period is over.
• Several bills in the 89th Texas Legislature propose raising the minimum wage to $18 or $19 per hour and restricting the tip credit. None have passed -- but if you run restaurants in Texas, you should know what's on the table.
• Overtime for tipped employees is calculated on the full $7.25 minimum wage, not the $2.13 cash wage. The required overtime cash payment is $5.76 per hour.

Texas is one of the cheapest states in America for tipped labor, at least on paper. The state minimum wage is $7.25 per hour -- identical to the federal rate -- and the tipped minimum cash wage is $2.13. That number hasn't changed since George H. W. Bush was in office.

If all you had to do was cut checks at $2.13 an hour and move on with your life, this would be a short article. But 2026 hit restaurant owners with a compliance curveball that has nothing to do with the hourly rate: brand-new IRS reporting rules that apply to every tipped employee on your payroll.

The base wage stayed the same. The paperwork did not.

Under the Fair Labor Standards Act (FLSA), you're allowed to count a portion of your employee's tips toward your minimum wage obligation. This is the tip credit. Texas follows the federal standard exactly, and there's no state law that provides anything different.

Here's the math:

You pay $2.13. The employee's tips cover the remaining $5.12. As long as cash wage plus tips equals at least $7.25 per hour for the workweek, you're compliant.

But "for the workweek" is the part that trips people up. You calculate this on a seven-day workweek basis -- not per shift, not per day. If a bartender has a dead Tuesday but a packed Friday, the Friday tips can offset the Tuesday shortfall, provided the weekly average reaches $7.25.

If tips fall short, you owe the gap. Full stop. Say you have a bartender in Dallas working a standard 40-hour week during a slow stretch in January. She earns $150 in tips total for the week:

• Cash wages: $2.13 × 40 = $85.20
• Tips: $150.00
• Total: $235.20
• Required minimum: $7.25 × 40 = $290.00
• Shortfall you owe: $54.80

That $54.80 must appear on her next paycheck. This "make-up" obligation is the single most audited issue in Texas Workforce Commission and Department of Labor wage investigations. Use TipFort's penalty calculator to estimate what that exposure looks like at your headcount.

Before you can legally claim a tip credit, you must tell the employee -- in writing or verbally -- three things: the cash wage you're paying ($2.13), the tip credit amount you're claiming ($5.12), and that the employee keeps all tips except in a valid tip-pooling arrangement. Skip the notice, and the entire tip credit is invalid.

Texas restaurants run tip pools constantly. Here's what's legal and what's not.

Managers, supervisors, and owners cannot participate in or receive money from a tip pool. Period. If you violate this, you forfeit your right to take any tip credit -- retroactively.

Valid tip pools include front-of-house staff who customarily receive tips: servers, bartenders, bussers, food runners. Back-of-house staff -- cooks, dishwashers, prep workers -- are generally excluded unless you pay every employee in the pool the full $7.25 minimum wage (taking zero tip credit). Use the tip qualifier tool to verify eligibility for each role.

The Texas Payday Law puts hard limits on what you can take out of a server's paycheck:

If a deduction pushes the employee's effective hourly pay below $7.25, it's illegal.

Overtime for tipped employees is the calculation restaurant managers get wrong most often. And in 2026, getting it wrong doesn't just cost you back wages -- it creates incorrect W-2s.

The rule: Overtime is based on the full minimum wage, not the cash wage. Here's the exact math:

1. Start with the full minimum wage: $7.25
2. Multiply by 1.5: $10.88
3. Subtract the tip credit (unchanged -- it does not get multiplied): $10.88 - $5.12 = $5.76

You owe $5.76 per overtime hour in cash wages. Not $3.20 (which is $2.13 × 1.5). If you've been paying $3.20 for overtime, you've been underpaying by $2.56 per hour -- and a DOL auditor will find every single instance. For detailed scenarios involving nondiscretionary bonuses and service charges, read the full guide on overtime calculation for tipped employees.

Here's where 2026 gets genuinely disruptive for Texas restaurant owners. The base wage didn't change. The tax reporting did.

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, created a federal income tax deduction allowing employees to deduct up to $25,000 in qualified tips annually. The deduction phases out above $150,000 in modified adjusted gross income ($300,000 for joint filers). It runs through 2028.

Your employees get the tax break. You get the paperwork.

Starting with tax year 2026, the IRS requires three new fields on every tipped employee's W-2:

• Box 12, Code TP -- Total qualified tips reported to you by the employee
• Box 12, Code TT -- Qualified overtime premium (the "half" in time-and-a-half only)
• Box 14b -- Treasury Tipped Occupation Code (TTOC)

The 2025 transition year is over. There is no penalty relief. If you file a W-2 missing Box 14b, that's an incorrect form -- $60 to $680 per W-2 in penalties.

You need to assign the correct three-digit TTOC code to each tipped role. For the Texas hospitality sector, the critical codes are:

Get the code wrong, and your employee's $25,000 deduction could be denied entirely. Look up every role on the TTOC Code Finder or see the complete tipped occupation codes list.

Critical distinction: Auto-gratuities -- like the 18% you add for parties of six or more -- are not qualified tips. They're service charges. If your POS lumps them together with voluntary tips, every Code TP amount you report will be inflated and every W-2 will be wrong. Read our full breakdown of auto-gratuity vs. voluntary tips.

Multiple bills in the 89th Texas Legislature propose dramatic changes:

None have been enacted. The historical pattern in the Texas legislature makes passage unlikely in this session. But if HB 691 passed as written, your labor costs for a 40-hour server would jump from $85.20 per week to $380 per week -- a 346% increase.

One thing that won't change regardless of state legislation: Texas preempts local cities from setting their own minimum wage. Section 62.151 of the Texas Labor Code prohibits Austin, Dallas, Houston, San Antonio, and every other municipality from passing higher local minimums for private employers.

For a comparison of how Texas stacks up against every other state, see the full tipped minimum wage by state 2026 guide.

Maria is a server at your 30-seat restaurant in Austin. She works 45 hours this week -- 40 regular and 5 overtime. She earns $600 in voluntary tips from credit cards and cash, plus $80 in auto-gratuity distributions from large parties.

Here's what her payroll should look like:

• Regular cash wages: 40 hrs × $2.13 = $85.20
• Overtime cash wages: 5 hrs × $5.76 = $28.80
• Total cash wages owed: $114.00
• Tip credit check: $600 tips ÷ 45 hrs = $13.33/hr in tips. Combined with cash wages, she's well above $7.25. No shortfall.
• W-2 Code TP: $600 (voluntary tips only -- the $80 auto-gratuity does not go here)
• W-2 Code TT: 5 hrs × $3.63 premium = $18.15
• W-2 Box 14b: 101 (Waiter/Waitress)

The $80 in distributed auto-gratuity still appears in Box 1 (total wages) but is excluded from Code TP. It's a service charge, not a qualified tip.

Not running the make-up calculation weekly. You can't average it monthly. The FLSA requires a workweek-by-workweek analysis. One bad week you miss is one violation per employee.

Paying $3.20 for overtime instead of $5.76. Multiplying $2.13 by 1.5 feels right but is dead wrong. Overtime starts from the full minimum wage.

Deducting walkouts from server paychecks. It doesn't matter that the customer skipped the bill. You can't pass that loss to the employee if it takes their pay below minimum wage. In Texas, you can't pass it to them at all.

Skipping the TTOC on W-2s. Your payroll system might not be configured for Box 14b yet. If it's not, every tipped W-2 you file will be non-compliant. For 30 employees, that's $1,800 to $20,400 in potential penalties.

Treating auto-gratuity as a voluntary tip for W-2 purposes. This inflates Code TP, creates incorrect W-2s, and could disqualify your employee's tax deduction.

What is the minimum wage for tipped employees in Texas in 2026? The tipped minimum cash wage in Texas is $2.13 per hour in 2026. Combined with the $5.12 maximum tip credit, the employee's total compensation must reach at least $7.25 per hour for the workweek. If tips fall short, you pay the difference.

Can Texas cities set their own minimum wage? No. Section 62.151 of the Texas Labor Code prohibits local municipalities from enacting minimum wage ordinances for private employers. The $7.25 federal/state rate applies uniformly across the entire state.

Are managers allowed to take tips in Texas? No. Owners, managers, and supervisors are prohibited from keeping any portion of employee tips or participating in a tip pool. Violating this rule means you lose the right to claim any tip credit -- retroactively.

Can I deduct credit card fees from tips in Texas? Yes, but only the exact percentage charged by the processor, paid out in the same month, and only if the deduction doesn't push the employee below $7.25 per hour.

How is overtime calculated for tipped employees in Texas? Start with the full $7.25 minimum wage, multiply by 1.5 ($10.88), then subtract the $5.12 tip credit. You owe $5.76 in cash wages for each overtime hour. The tip credit does not increase for overtime.

What are the new 2026 IRS W-2 reporting requirements? Under the OBBBA, you must report qualified tips in Box 12 Code TP, the overtime premium in Box 12 Code TT, and a Treasury Tipped Occupation Code in Box 14b. Penalties for non-compliance are $60 to $680 per incorrect form.

Does Texas require meal or rest breaks for restaurant workers? No. Texas has no state law mandating meal or rest breaks for adult employees. However, if you voluntarily provide a short break of 5 to 20 minutes, the FLSA requires you to pay for that time.

Run through TipFort's free Compliance Checklist to make sure your payroll, POS, and W-2 setup are ready for 2026 -- before the next pay cycle.

Check your compliance status now