The Chicago tipped minimum wage is $12.62 per hour as of July 1, 2025, at any business with four or more employees.1City of Chicago. Minimum Wage That figure is 76% of the city’s full $16.60 minimum wage, with employers allowed to claim the remaining 24% as a tip credit. If your tips plus that base don’t reach $16.60 an hour in a pay period, your employer has to make up the difference. And the plan to eliminate the tip credit entirely by 2028 no longer stands: a 2026 compromise pushed the finish line to 2030 for larger employers and 2033 for smaller ones.
If you work for a business with three or fewer employees, the city ordinance doesn’t cover you. You fall under Illinois state law instead, which sets the tipped minimum at $9.00 per hour, or 60% of the $15.00 state minimum wage.2Illinois Department of Labor. Minimum Wage Law
What the 2026 Phase-Out Delay Changed
Chicago’s One Fair Wage ordinance, passed in 2023, originally cut the tip credit by 8 percentage points every July 1, aiming to reach zero by 2028.3Chicago Office of Labor Standards. Chicago Minimum Wage Fact Sheet Under that schedule the credit dropped to 32% in July 2024 and 24% in July 2025.
The schedule then changed. The City Council passed a freeze in early 2026, Mayor Johnson vetoed it in March, and a compromise cleared the Workforce Development Committee in May 2026 before the full Council approved it by a near-unanimous vote. The mayor indicated he would not veto the compromise. Under it, the phase-out now runs on two tracks based on employer size:
- Employers with 21 or more workers: the tip credit stays at 24% through July 2027, then drops 8 percentage points a year starting July 1, 2028, hitting zero on July 1, 2030.
- Employers with 4 to 20 workers: the tip credit stays at 24% through July 2029, then decreases each year until it reaches zero on July 1, 2033.
The full minimum wage itself keeps rising every July 1 by the lower of CPI or 2.5%. So the tipped base moves too. The city estimates the tipped rate will be about $12.96 on July 1, 2026, when the full minimum reaches $17.05 and the 24% tip credit stays frozen.
Who Counts as a Tipped Employee
Under the city ordinance, you’re a tipped employee if you earn more than $30.00 per month in gratuities.4American Legal Publishing. Municipal Code of Chicago 6-105-010 – Definitions That covers servers, bartenders, valets, baristas, delivery drivers, and similar roles. If your tips stay below $30 in a given month, your employer has to pay you the full standard minimum wage with no tip credit at all.
Chicago’s ordinance also reaches workers who don’t live in the city. It applies to anyone who works at least two hours within Chicago’s boundaries during any two-week period.5Municipal Code of Chicago. Municipal Code of Chicago 6-105-010 – Definitions Compensated travel time inside the city counts toward those two hours. Your regular commute doesn’t.
When Tips Don’t Bring You to the Full Minimum
The tip credit is only allowed to fill in the gap between your base wage and the full Chicago minimum. If your $12.62 base plus actual tips don’t average out to at least $16.60 per hour across the pay period, your employer owes you the difference.1City of Chicago. Minimum Wage
This calculation runs pay period by pay period. Slow Tuesday lunches can’t be offset against busy Friday nights in a different pay period. Violations of the ordinance carry fines of $500 to $1,000 per offense, and the city can pursue back pay and other remedies.6American Legal Publishing. Municipal Code of Chicago 6-105 – Violation Penalty
Overtime When You’re Paid the Tipped Wage
Overtime is time-and-a-half after 40 hours, calculated on your regular rate (base wage plus tip credit), with the tip credit then subtracted from the overtime rate.7U.S. Department of Labor. FLSA Overtime Calculator Advisor
Using current Chicago rates: your regular rate is $16.60. Multiply by 1.5 to get $24.90. Subtract the $3.98 tip credit, and your employer owes $20.92 per hour in direct cash wages for each overtime hour. The tip credit taken during overtime has to be the same dollar amount as during straight time. An employer can’t inflate the tip credit just because the overtime rate is higher.
Tip Pools, Managers, and Service Charges
Mandatory tip pools are allowed, but when the employer claims a tip credit (as most Chicago restaurants currently do), the pool is limited to workers who customarily receive tips: servers, bartenders, bussers, and the like.8Office of the Law Revision Counsel. 29 USC 203 – Definitions Back-of-house staff can only be added to the pool once the employer stops taking a tip credit and pays the full minimum wage.
Regardless of any tip credit, managers, supervisors, and owners with a 20% or greater equity stake cannot keep any part of employee tips, including from a communal jar or pool.9U.S. Department of Labor. Fact Sheet – Managers and Supervisors Under the Fair Labor Standards Act and Tips The only exception is a tip a customer gave specifically for service the manager personally and solely provided, which rarely fits the reality of a restaurant floor.
Watch out for service charges. A mandatory 20% for large parties, a “wellness fee,” or any automatic charge on the bill is not a tip under IRS rules, even if the menu calls it one. The IRS treats a payment as a tip only when the customer freely chooses to pay, decides the amount, isn’t following an employer policy, and picks who receives it.10Internal Revenue Service. Tips Versus Service Charges – How to Report If any of those factors is missing, the money is a service charge. It belongs to the employer first, gets reported as regular wages on your W-2, and gets distributed however the business decides.
The Notice Your Employer Owes You
Before taking any tip credit, your employer has to tell you the cash wage they’re paying, the amount they’re claiming as a tip credit, and that you keep all your tips except through a valid tip pool.11U.S. Department of Labor. Fact Sheet 15 – Tipped Employees Under the Fair Labor Standards Act The notice can be oral or written. An employer who skips it loses the right to claim any tip credit and owes you the full minimum wage for every hour worked, plus back pay for the difference.
Employers are also required to display Chicago’s official labor law notices in a visible location and give them to each covered worker with the first paycheck.12City of Chicago. Office of Labor Standards If you’ve never seen those posters, that’s a compliance problem worth raising on its own.
Reporting Your Tips to the IRS
Every tip is taxable income: cash, credit card, or digital payment app. If you receive $20 or more in tips during a calendar month, you’re required to report the total to your employer by the 10th of the following month so they can withhold income tax, Social Security, and Medicare.13Internal Revenue Service. Topic No. 761 – Tips Withholding and Reporting Tips under $20 in a month still go on your tax return even though you don’t have to report them to your employer.
Filing a Wage Complaint
If your employer isn’t paying the tipped minimum, isn’t making up shortfalls, or is skimming from a tip pool, you can file with Chicago’s Office of Labor Standards. The office investigates, mediates, issues violations, and can pursue license discipline against employers who don’t comply.14City of Chicago. Wage Theft You can call 311, use the CHI 311 online portal, or fill out the complaint form on the city’s site. For help, email bacplaborstandards@cityofchicago.org or call (312) 744-2211.
Retaliation is prohibited under the ordinance.12City of Chicago. Office of Labor Standards If your hours get cut, your schedule gets changed, or you get fired after reporting a violation, that’s a separate claim. Save your pay stubs, any tip records you keep, and your schedules. Gathering those while you still work there is far easier than trying to reconstruct them after you leave.