Is there a limit on how much of my tips I have to tip out?
The short answer
Example math
Say you’re a server on a tipped cash wage, and compare two illustrative house policies on the same shift: $2,000 in sales, $300 in tips.
| Tips-based: 20% of tips (illustrative) | Sales-based: 3% of sales (illustrative) | |
|---|---|---|
| Tip-out | $300 Ă— 0.20 = $60 | $2,000 Ă— 0.03 = $60 |
| You keep | $240 | $240 |
Now a slow-tipping night: same $2,000 in sales, only $150 in tips.
| Tips-based: 20% of tips | Sales-based: 3% of sales | |
|---|---|---|
| Tip-out | $150 Ă— 0.20 = $30 | $2,000 Ă— 0.03 = $60 |
| You keep | $120 | $90 |
A tips-based tip-out can never be more than your tips. A sales-based one can take a bigger share on a bad night, and if tips are low enough, it could be more than you took in.
Still being verified: whether a sales-based required tip-out that exceeds tips received raises an FLSA issue
Either way, your employer can count only the tips you kept toward its tip credit.
Not tax or legal advice.
Check your estimate
Once your tip-outs are settled, estimate the federal deduction on what you kept. Enter the tips you kept after tip-outs, not the whole pool.
Open the calculator
Plain English
Federal wage law sets no cap
DOL says federal wage law doesn’t limit the percentage or amount of each employee’s contribution to a valid mandatory tip pool. So “you can’t be made to tip out more than X%” isn’t a federal rule.
What does limit a tip-out
- Who gets it. On a tipped cash wage (below $7.25 an hour), the pool can include only workers in customarily tipped jobs. If everyone gets at least $7.25 an hour in cash wages, it can also include cooks and dishwashers. See Can my employer make me tip out or join a tip pool?
- Nobody above you. Your employer, managers, and supervisors can’t keep any part of it.
- You’re told the amount. If your employer takes a tip credit, it must tell you the required contribution.
- Tip credit only on what you keep. Your employer can credit only the tips you end up with toward your minimum wage.
Tip-outs figured on sales
Federal wage guidance doesn’t directly address tip-outs figured as a percentage of sales instead of tips. The rules above still apply: your employer can’t keep any of the money, and only eligible coworkers can receive it. What happens when a sales-based tip-out is bigger than your tips isn’t settled in federal guidance. More in My tip-out is a percentage of my sales, not my tips. How does that work?
There’s also no federal “normal” tip-out percentage. The ones on this page are made up for the math.
Your state may have stricter rules.
For taxes
The size of the tip-out doesn’t change the tax rule: you report only the tips you keep.
Common mistakes
- Believing a federal rule caps tip-outs at a set percentage. There isn’t one.
- Not asking what the required contribution is. On a tipped cash wage, you’re owed that notice.
- Comparing tip-out policies by the percentage alone. 3% of sales and 20% of tips can mean very different money.
- Reporting what you collected instead of what you kept.
Official sources
Last verified:
Checked DOL Fact Sheet #15, the federal tip-pooling regulation (29 CFR 531.54), 29 U.S.C. 203(m), and IRS Publication 531.
Still open: Federal guidance doesn’t say whether a required tip-out based on sales that’s bigger than your tips raises a wage-law problem.