Texas Subminimum Wage for Tipped Employees 2026: Employer Guide
- Texas does not have a state minimum wage above the federal rate; the federal tipped minimum wage of $2.13/hour applies.
- Employers in Texas can claim a tip credit if employees' tips plus the $2.13/hour cash wage equal or exceed the federal minimum wage of $7.25/hour.
- If tips do not bring an employee's total hourly wage to $7.25, the employer must make up the difference to ensure compliance.
- Tipped employees in Texas with incomes at or above $15,060 (100% FPL for a single person) may qualify for significant ACA marketplace subsidies.
Texas employers of tipped employees must adhere to federal Fair Labor Standards Act (FLSA) guidelines, as the state does not set a higher minimum wage or a distinct tipped minimum wage. In 2026, the federal minimum cash wage for tipped employees remains $2.13 per hour, provided that the employee's tips, when combined with this cash wage, reach at least the federal minimum wage of $7.25 per hour. Employers in Texas are responsible for ensuring that this "tip credit" calculation is correctly applied and that any shortfall is covered.
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Texas Subminimum Wage and Tip Credit Rules
In Texas, the minimum wage regulations for tipped employees are governed by federal law, specifically the Fair Labor Standards Act (FLSA). There is no separate state minimum wage for tipped employees that supersedes the federal standard. This means:
- Federal Tipped Minimum Wage: Employers can pay a cash wage of $2.13 per hour to employees who customarily and regularly receive more than $30 per month in tips.
- Federal Minimum Wage: The federal minimum wage is $7.25 per hour.
- Tip Credit: The difference between the federal minimum wage ($7.25) and the cash wage paid ($2.13) is known as the "tip credit," which is $5.12 per hour. Employers can claim this credit, but only if the employee's tips are sufficient to bring their total hourly earnings up to at least $7.25.
If an employee's tips combined with their $2.13 cash wage do not reach $7.25 per hour for all hours worked in a workweek, the employer must pay the difference to ensure the employee receives at least the full federal minimum wage.
Employer Obligations Under FLSA
Employers of tipped employees in Texas have several key responsibilities to ensure compliance with federal law:
- Notification: Employers must inform tipped employees in advance of their intention to pay them the subminimum cash wage and claim a tip credit. This notification should cover the cash wage, the amount of the tip credit, and that all tips received by the employee must be retained by them.
- Tip Retention: All tips, whether received directly from customers or through a valid tip pooling arrangement, are the property of the employee. Employers, including managers and supervisors, cannot keep any portion of employee tips.
- Valid Tip Pooling: If an employer implements a tip pool, it must be limited to employees who customarily and regularly receive tips, such as waiters, waitresses, and busboys. Employees who do not customarily and regularly receive tips (e.g., cooks, dishwashers) cannot participate in a tip pool.
- Dual Jobs: If an employee performs both tipped and non-tipped duties, the employer can only claim a tip credit for the time spent on tipped duties. If the employee spends more than 20% of their workweek performing non-tipped duties, the employer must pay the full minimum wage for that non-tipped time.
- Record Keeping: Employers must maintain accurate records of hours worked, cash wages paid, and the amount of tips received by each employee.
Calculating the Tip Credit
Understanding how to correctly calculate the tip credit is crucial for Texas employers. The calculation ensures that, even with the subminimum cash wage, employees reach the federal minimum wage through a combination of cash wages and tips.
Example: An employee works 40 hours in a week and is paid a cash wage of $2.13 per hour. Total cash wage for the week: 40 hours $2.13/hour = $85.20.
The federal minimum wage for 40 hours is: 40 hours $7.25/hour = $290.00.
The maximum tip credit an employer can claim for the week is: $290.00 - $85.20 = $204.80.
If the employee earns $220.00 in tips during that week, their total earnings are $85.20 (cash) + $220.00 (tips) = $305.20. Since $305.20 is greater than $290.00, the employer has met their obligation, and the employee's effective hourly rate is $7.63 ($305.20 / 40 hours).
However, if the employee only earns $150.00 in tips, their total earnings are $85.20 (cash) + $150.00 (tips) = $235.20. This is less than the required $290.00. The employer must then pay an additional $54.80 ($290.00 - $235.20) to ensure the employee receives the full $7.25 per hour for all hours worked.
Health Insurance for Tipped Employees in Texas
Many tipped employees, especially those working part-time or for small businesses, may not receive employer-sponsored health insurance. For these individuals, the Affordable Care Act (ACA) marketplace, HealthCare.gov, is the primary source of coverage in Texas. Given that tipped wages can often lead to lower annual incomes, many tipped employees qualify for significant financial assistance.
Income and Eligibility for Subsidies
Your eligibility for health insurance subsidies depends on your Modified Adjusted Gross Income (MAGI) relative to the Federal Poverty Level (FPL). Tipped income, like all earned income, contributes to your MAGI. The table below shows the 2026 FPL thresholds for various household sizes, which determine subsidy eligibility.
| Household Size | 100% FPL | 138% FPL | 150% FPL | 200% FPL | 250% FPL | 400% FPL |
|---|---|---|---|---|---|---|
| 1 person | $15,060 | $20,783 | $22,590 | $30,120 | $37,650 | $60,240 |
| 2 people | $20,440 | $28,207 | $30,660 | $40,880 | $51,100 | $81,760 |
| 3 people | $25,820 | $35,632 | $38,730 | $51,640 | $64,550 | $103,280 |
| 4 people | $31,200 | $43,056 | $46,800 | $62,400 | $78,000 | $124,800 |
| 5 people | $36,580 | $50,480 | $54,870 | $73,160 | $91,450 | $146,320 |
| 6 people | $41,960 | $57,905 | $62,940 | $83,920 | $104,900 | $167,840 |
| 7 people | $47,340 | $65,329 | $71,010 | $94,680 | $118,350 | $189,360 |
| 8 people | $52,720 | $72,754 | $79,080 | $105,440 | $131,800 | $210,880 |
| +1 additional | +$5,380 | +$7,424 | +$8,070 | +$10,760 | +$13,450 | +$21,520 |
| Source: HHS 2025 Federal Poverty Guidelines (applied to 2026 ACA plan year). | ||||||
Texas Medicaid Gap: Texas has not expanded Medicaid. This means adults without dependent children whose income falls below 100% FPL (e.g., below $15,060 for a single person) generally do not qualify for Medicaid and also do not qualify for ACA marketplace subsidies, falling into a "coverage gap."
Subsidies (APTC): For incomes between 100% and 400%+ FPL, Advanced Premium Tax Credits (APTC) significantly reduce your monthly health insurance premiums.
Cost-Sharing Reductions (CSRs): If your income is between 100% and 250% FPL, you may also qualify for Cost-Sharing Reductions (CSRs), which lower your deductibles, copayments, and out-of-pocket maximums. CSRs are only available on Silver-tier plans purchased through HealthCare.gov.
Pregnant Women Medicaid: Notably, Texas Medicaid for Pregnant Women (MPW) covers pregnant individuals with income up to 200% FPL, providing crucial prenatal, labor, delivery, and postpartum care.
Recommended Plan Tiers for Tipped Employees
Choosing the right plan tier depends on your income and expected healthcare needs:
| Income Level | FPL % | Recommended Tier | Monthly Net Premium | Why |
|---|---|---|---|---|
| Under $15,060 | Under 100% FPL | Coverage Gap | N/A | Texas has not expanded Medicaid; no ACA subsidies below 100% FPL for most adults. Check MPW if pregnant. |
| $15,060–$22,590 | 100–150% FPL | Silver (CSR Tier 1) | ~$0–$30 | Strongest subsidies and CSRs drastically reduce out-of-pocket costs to ~$1,000. Often the best value. |
| $22,590–$30,120 | 150–200% FPL | Silver (CSR Tier 2) | ~$30–$100 | Substantial CSRs reduce OOP max to ~$2,000; typically better value than Bronze, even with slightly higher premiums. |
| $30,120–$37,650 | 200–250% FPL | Silver (CSR Tier 3) or Gold | ~$100–$200 | CSRs still apply on Silver, reducing OOP max to ~$5,000. Gold may be better if high expected medical use. |
| $37,650–$60,240 | 250–400% FPL | Gold or HDHP | Varies | No CSRs available. Gold plans offer lower deductibles. HDHP + HSA is good for healthy individuals. |
| Above $60,240 | Above 400% FPL | HDHP+HSA (off-exchange) | Varies | Reduced or no APTC. HDHP + HSA offers triple tax advantage for those who can afford high deductibles. |
| Net premium after APTC. Single adult, benchmark Silver reference. Actual premium varies by plan and individual. | ||||
Remember that on HealthCare.gov, the plan types available in Texas are generally HMO and EPO. PPO plans are typically not available on-exchange with subsidies.
Steps for Texas Employers to Ensure Compliance
To avoid wage violations and ensure fair treatment of tipped employees, Texas employers should:
- Review FLSA Requirements: Regularly familiarize yourself with federal minimum wage and tip credit rules, as state law does not override these.
- Provide Clear Notice: Always inform employees in writing, before they start, about the cash wage, tip credit amount, and that tips belong to the employees.
- Maintain Accurate Records: Keep detailed and precise records of all hours worked, cash wages paid, and tips received by each employee.
- Monitor Tip Earnings: Regularly verify that each employee's combined cash wage and tips meet at least the federal minimum wage of $7.25 per hour for all hours worked.
- Make Up Shortfalls: If tips are insufficient, promptly pay the difference to ensure compliance.
- Consult Professionals: When in doubt, seek advice from a payroll specialist or employment law attorney to ensure your practices are fully compliant.