Journal / Essay

The Math of the Tip

The minimum-wage piece in this journal covered the $7.25 floor most workers stand on. This is about the much lower floor underneath a specific 4.3 million of them — and a 2025 law that sounds like it fixed something without actually touching the number that matters.

And Then You're Dead · August 2026 · 3 min read

The federal minimum wage has been stuck at $7.25 an hour for 17 years, covered elsewhere in this journal. There's a second, lower floor underneath it that most people never think about, because it isn't the number printed on a paycheck — it's the number an employer is allowed to pay before tips are expected to cover the rest.

Frozen Since 1991

Congress last raised the regular federal minimum wage in 2009. The tipped minimum wage hasn't moved since a full eighteen years before that.

In 1996, Congress amended federal law to formally decouple the tipped minimum from the regular minimum wage, effectively locking $2.13 in place regardless of future increases. Employers are allowed to pay that base rate on the assumption tips will close the rest of the gap to $7.25 — and if they don't, the employer is technically required to make up the difference, though enforcement is inconsistent.

What That Gap Produces

"Tips will make up the difference" is the theory. In practice, tipped income is unpredictable, and the workers depending on it are poorer as a group than workers who aren't.

Tipped workers are nearly twice as likely to live in poverty as workers who aren't tipped — a 12.8% poverty rate versus 6.5%.

Seven states and Washington, D.C. have eliminated the subminimum wage entirely, requiring the full state minimum regardless of tips. Fifteen states still sit at the federal $2.13 floor with nothing added on top.

The Fix That Wasn't

In July 2025, a new federal law promised something that sounded like real relief: "no tax on tips." The actual mechanism is narrower than the name suggests.

A deduction only has value against tax you'd otherwise owe. More than a third of tipped workers already earn too little to owe federal income tax at all, which means the workers with the lowest incomes — the ones a "no tax on tips" headline would suggest are being helped most — get no benefit from it whatsoever. The $2.13 base wage the deduction was announced alongside was not raised, adjusted, or even mentioned in the bill.

And Then You're Dead

A wage floor frozen for 35 years produces a predictable result: a workforce measurably poorer than everyone else, propped up by income nobody can guarantee shift to shift. The policy response wasn't to touch that floor. It was a tax deduction capped low enough, and structured narrowly enough, that more than a third of the people it was announced for get nothing from it at all. That's the plan. That's the math.

That's it. That's the whole thing.

Read about the minimum wage · or see every essay