This essay explains how tipped employees are compensated and how much cash they earn each week.
The federal minimum wage for tipped employees is $2.13 cash an hour. The law presumes people paid $2.13 an hour earn at least $5.12 an hour in tips, so tipped employees in AL, GA, IN, KS, KY, LA, MS, NE, NC, OK, SC, TN, TX, UT, VA, and WY -- the states that accept the federal minimum wage for tipped employees -- have gross take home pay of $85.20 a week. Applicable payroll taxes, disability comp, unemployment comp are based upon the step up to $7.25 an hour -- $290 a week -- so most tipped employees in those states receive a weekly take home paycheck, after deductions, of less than $20.
Here’s the computation.
In those 16 states -- gross cash pay
40 hours @ $2.13 = $85.20
Presumed Minimum earnings with tips is the regular Federal Minimum Wage:
40 hours @ 7.25 = $290
Federal Income Taxes $13
FICA (Social Security) is $18
Medicare is $4
Disability Insurance, Workmen's Compensation, and Unemployment Compensation Combined about $5
Taxes on presumed minimum earnings including tips of $290 are deducted from the gross cash pay of the tipped employee.
Gross Cash Pay Less Deductions
$85.20 - (13 + 18 + 4 + 5) = $45.20 net cash take home pay
If the employee is NOT on medicaid and is purchasing health insurance for herself, her premium will be be at least $25
Net Cash Pay Less Deductions & Health Insurance
$85.20 - ($40 + $25) = $20.20
To the $20.20 net paycheck, add in the presumed tips of $5.12/hour X 40 hours --
$20.20 + $204.80 = $225
$225 net cash take home pay per week --
after taxes, deductions, and health insurance adding in cash tips presumed to have been received.
Many restaurant workers in the USA are now earning even less than that. Restaurants assert those workers are independent contractors. "Independent contractors" earn ONLY the cash tips they receive.
Many restaurants do NOT pay wait personnel the tips that are paid by credit card, but keep those tips for the restaurant. Trump's labor department okayed that. You'll be doing the wait personnel who serve you a big, big favor if you tip them in cash.