Illinois Tipped Minimum Wage Rules 2026: Tip Credit & Chicago Phaseout
Published by the StateWageCalc Editorial Team • Current as of October 2026
1. Statutory Framework: 820 ILCS 105/4(c)
In Illinois, tipped wage standards are established by 820 ILCS 105/4(c). Under the Illinois Minimum Wage Law, employers may claim a credit against the statutory minimum wage for tips received by an employee in an amount not to exceed 40% of the applicable minimum wage.
Because the adult Illinois minimum wage is $15.00 per hour, the statewide maximum tip credit is $6.00 per hour ($15.00 × 40%), resulting in a mandatory employer cash wage floor of $9.00 per hour (60% of $15.00).
2. Chicago’s Historic Tip Credit Phaseout (2024–2028)
On October 6, 2023, the Chicago City Council passed the landmark “One Fair Wage” amendment to Municipal Code Chapter 6-105. Under this ordinance, Chicago is phasing out the subminimum wage for tipped workers over a five-year period. In May 2026, the City Council updated the intermediate steps to adjust for prevailing economic and wage indices.
| Period | Standard Min Wage | Tipped Cash Wage Floor | Max Tip Credit |
|---|---|---|---|
| July 1, 2024 – June 30, 2025 | $16.20 | $11.02 | $5.18 |
| July 1, 2025 – June 30, 2026 | $16.60 | $12.62 | $3.98 |
| July 1, 2026 – June 30, 2027 | $17.05 | $12.96 | $4.09 |
| July 1, 2027 – June 30, 2028 | Indexed (Est. $17.50) | Est. $15.20 | Est. $2.30 |
| July 1, 2028 & Beyond | Full Standard Rate | 100% of Minimum Wage | $0.00 (Phased Out) |
3. Cook County Tipped Wage & Overtime Rules
In non-opted-out Cook County territory, the statutory minimum wage effective July 1, 2026 is $15.40 per hour. Under Cook County Code § 42-13, the tip credit is capped at $6.15 per hour, requiring employers to pay a direct cash wage of at least $9.25 per hour.
For overtime calculations, published Cook County guidance establishes an explicit cash wage floor of $16.94 per hour. This is derived from the full statutory overtime rate of $23.10 ($15.40 × 1.5) minus the maximum allowable tip credit of $6.15.
4. Tip Credit Prerequisites & Tip Pool Legality
An employer may claim a tip credit ONLY when all statutory preconditions under 820 ILCS 105/4(c) and 29 U.S.C. § 203(m) are met:
- Advance Written Notice: The employer must inform the employee of the provisions of 820 ILCS 105/4(c) in advance, including the exact amount of cash wage paid, the amount of tip credit claimed, and that all tips received must be retained by the employee.
- Complete Tip Retention: All tips received by the employee must be retained by the employee, except for valid tip pooling arrangements.
- Manager and Supervisor Exclusion: Under FLSA § 3(m)(2)(B), managers, supervisors, and shift leads with managerial duties can NEVER participate in a tip pool or retain any portion of employee tips, regardless of whether a tip credit is claimed.
- Credit Card Processing Deductions: If tips are charged on credit cards, the employer may deduct only the actual transactional fee charged by the card processor (typically 1.5%–3.0%) for converting that specific tip to cash. If the deduction drops the employee below the statutory minimum cash floor or exceeds actual processing costs, the tip credit is invalidated.
5. Tip Shortfall Top-Up Liability
If an employee's tips combined with their direct employer cash wage average less than the applicable minimum wage floor ($15.00 state, $17.05 Chicago, or $15.40 Cook County) over the workweek, the employer must pay the difference in cash. Failure to make this shortfall payment constitutes a direct minimum wage violation subject to 300% punitive damages under 820 ILCS 105/12.