A tip credit lets an employer pay a tipped worker a lower cash wage and count part of the worker's tips toward the minimum wage. Under federal law the cash wage can be as low as $2.13 an hour, so the largest tip credit is $5.12 ($7.25 minus $2.13).
The credit only works if your tips actually fill the gap. Say you work 30 hours in a week at $2.13 and keep $90 in tips. The law requires $217.50 for those hours (30 × $7.25). You got $63.90 in cash wages plus $90 in tips, which is $153.90, so your employer owes the $63.60 difference for that workweek.
To take the credit, your employer must tell you about it first (the tip credit notice) and let you keep all your tips except through a valid tip pool. Some states, including California, Washington, Oregon, Nevada, Minnesota, Montana and Alaska, do not allow a tip credit at all, and many others set a higher cash wage. The state pages have the current numbers, and the tip credit calculator does the weekly math.
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