What does Max Tip Credit Mean?

Ask Paywizard.org - What does the minimum tip credit of $5.12 mean? Paywizard.org answers.
Question - Date: 2010


I was reading under Texas law that min cash per hour = 2.13, which i understand, and basic cash wages+tips = 7.25, which i understand. Mean they must pay me at least 7.25/hr if I do not make enough tips. What I do not understand is the "Max tip credit" part that says 5.12. Does this mean they are not allowed to tax any of my tips that exceed 5.12 / hr? What exactly does the 5.12 mean?

Answer Paywizard.org

The maximum tip credit of $5.12 refers only to the maximum amount that you have to get in tips to make the full hourly minimum wage on top of the cash wage of $2.13 of your employer. 

So it has nothing to do with less taxes, all tips are taxable. If you want to know more about tips and tax, read this IRS brochure in the next link:http://www.irs.gov/pub/irs-pdf/p3148.pdf