Vincent is a tipped employee who earns a wage of $2.13 per hour in a tip-credit state and works a standard 40-hour workweek. Last week, he earned $60 in tips. Which of the following is true?
A) Vincent does not have to report his tips for the week because they were less than $75.
B) Vincent must ﬁle a request with his employer to have the tip credit applied to his wages for the week.
C) Vincent's employer must pay him the tip credit because his wages and tips for the week were less than the federal minimum wage.
D) Vincent's employer may not report his tips for income tax purposes.

Question

Quizplus · Accepted Answer

In a tip-credit state, the employer is allowed to take a tip credit towards their minimum wage obligation, meaning they can pay their tipped employees below the federal minimum wage as long as their tips make up the difference. However, if the combination of the employee's wages and tips do not reach the federal minimum wage, the employer is responsible for making up the difference. In this case, Vincent's wages for the week ($2.13 x 40 hours = $85.20) plus his tips ($60) add up to $145.20, which is less than the federal minimum wage of $7.25 per hour x 40 hours = $290. Therefore, Vincent's employer must pay him the tip credit to make up the difference. Choice A is incorrect because all tips are required to be reported to the employer regardless of the amount. Choice B is incorrect because the tip credit is automatically applied, and Vincent does not need to request it. Choice D is incorrect because both the employee and employer are required to report tips for income tax purposes.

Vincent Is a Tipped Employee Who Earns a Wage of $2.13