Tip Credit States 2026: Which States Allow It, the 7 That Do Not, and Employer Rules

• Seven states prohibit tip credits. The other 43 states permit some form of tip-credit treatment, subject to coverage and local rules; D.C. also retains a tipped-wage system.
• A $2.13 cash wage does not always mean a $7.25 total wage floor.
• A state allowing tip credits does not make every employee or every pool eligible.
• Use the current location and date before setting the payroll rate.

Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington prohibit tip credits. The other states allow some form of credit, but the permitted amount and conditions vary. D.C. also allows a separate tipped cash wage in 2026.

Use the full state wage table when you need a dollar amount. Use this guide to organize the payroll decisions behind that amount. The DOL state reference is a starting point, followed by the state and local rules for the actual work location.

A permitted tip credit counts part of the employee's tips toward the wage obligation. The employer still pays the required direct wage and supplies any shortfall. The employee retains tips subject to a lawful sharing arrangement.

This is a wage rule. It is separate from the new federal deduction on an employee's income tax return. An employee can have deductible tips in a state that bans tip credits, and a permitted tip credit does not prove every payment is deductible.

For covered employees, the familiar $2.13 group includes Alabama, Georgia, Indiana, Kansas, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Utah, and Wyoming. Coverage and other rules still need to be checked.

Nebraska and Virginia also use a $2.13 direct-wage floor for eligible tipped arrangements, but their 2026 total minimums are higher: $15.00 and $12.77 respectively. Calling all these states “the full federal tip-credit states” can hide that distinction. See Nebraska Labor and Virginia DOLI.

Examples show why a single rate field is not enough:

For the underlying schedules, see Florida Commerce, the New York tipped-worker fact sheet, Hawaii wage guidance, and D.C. DOES.

The employer pays the full applicable wage before tips. Alaska's and Oregon's July changes are confirmed by Alaska Labor and Oregon BOLI. Read the dedicated seven-state guide for pooling and payroll examples.

1. Identify the employee's work location, coverage, and tipped occupation.
2. Verify the direct-wage floor and the maximum permitted credit.
3. Deliver and document the required notice.
4. Check that the pool and tip retention meet federal and state rules.
5. Reconcile actual tips and make up deficiencies at the required frequency.
6. Calculate overtime from the regular rate, including required wage components.

The federal tipped-wage guide explains the national baseline. A state may impose more protective requirements.

A location-by-location rate matrix can live beside the employee tip records, but neither substitutes for the other. Preserve the amounts, roles, and dates used in payroll. Then reconcile reported cash tips and qualified overtime for the new W-2 fields.

The occupation list is a tax-reporting reference. It does not override wage-law pool restrictions. The same distinction matters when separating mandatory charges from voluntary tips.

How many states allow tip credits?

43 states permit some form of tip-credit treatment, subject to the applicable coverage and local rules. Seven states prohibit the credit; D.C. has its own tipped-wage rules.

Are Nebraska and Virginia federal-minimum-wage states for tipped workers?

Their $2.13 direct-wage starting point does not make the total minimum $7.25. Their general 2026 total wage floors are $15.00 and $12.77, respectively.

Does a tax occupation code establish tip-pool eligibility?

No. Treasury occupation codes concern the tax deduction and reporting. Federal and state wage-law rules separately determine who can participate in a mandatory tip pool.

Write down the applicable wage floor, permitted credit, notice requirements, and pool restrictions for each location. Include the source and effective date. Recheck that record when someone transfers locations or the wage schedule changes.

Then review how employee tip amounts reach payroll. The tip reporting software checklist helps decide whether your current spreadsheet, POS, and payroll tools cover the work. Contact TipFort with a sample of your reporting needs if employee record preparation is the missing piece.