FICA Tips Tax Credit

FICA Tip Credit Calculator

Annual Savings

$0.00

Number of Tipped Employees

Average Hourly Wage ($)

(Maximum number is: $5.15)

Weekly Tips Per Employee ($)

Average Hours Per Week

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Businesses in industries where employees are tipped face intricacies in payroll and taxes and requirements to report their workers’ tip earnings accurately. While the documentation — Form 8846 — to claim the credit seems simple enough, there are many stipulations and other factors of which owners may not be aware regarding the FICA tax. If you are missing this credit, you may want to consider working with a different, trusted, and reputable payroll provider that will track and make calculating this credit a breeze.

Who Does It Apply To?

The FICA tip tax credit is only available to employers with a tipped workforce in the food and beverage industry. Unlike the tip credit under the FLSA, businesses in other industries cannot claim this tax credit.

To be eligible for the FICA tip tax credit, restaurants must determine that all non-exempt employees are compensated at least the federal minimum wage for hours worked, which for this tip tax credit is $5.15. If the state where the restaurant resides has a higher minimum wage rate, the higher wage applies. Compensation may be totaled from different types of compensation received, such as hourly wages, tips, and gratuities that the staff member records and the restaurant’s meals.

Employees must keep an accurate record of daily tips, whether they come in the form of cash or credit. A total must be provided to the employer on an annual basis. This reported total is used for income tax recording, Social Security payments, and other withholdings. Restaurants must follow up with employees to ensure this information is received.

What Is the FICA Tip Credit?

Employers with employees who earn gratuities must pay taxes on the tips their employees collect from patrons, as the tips are considered income under FICA. However, restaurant employers may receive an incentive for accurately reporting their workers’ tip earnings: an income tax credit called the FICA Tips Credit, which can save restaurants hundreds of dollars per employee.

The FICA tip credit permits an eligible employer to credit a portion of the FICA taxes paid on certain tip wages against the business’s income taxes. This credit equals the employer’s portion of the FICA tax, currently 7.65 percent. Suppose an employee’s non-tip wages are less than $5.15 per hour. In that case, the credit equals the employer’s share of FICA taxes paid on the employee’s hourly tip wages after reducing that tip wage by the difference between the employee’s non-tip hourly wage and $5.15, according to the U.S. Treasury.

Here’s how our in-depth process works.

Application process

There is no formal application to become eligible for the FICA tip credit. As long as your business meets the eligibility requirements outlined above (basically, employees at your food and beverage business accept tips and you pay FICA taxes on those tips), you may complete Form 8846 and attach it to your tax return. Provided you’ve calculated everything correctly, you should receive the credit in the amount you paid in FICA taxes.

Filing deadlines

The employment tax filing deadlines are April 30, July 31, October 31, and January 31 of each year. To get the FICA tip credit, you need to have met all of your quarterly employment tax filing requirements and get your end-of-year tax return filed by April 15, 2025 (unless you are granted an extension). We are also able to amend the last three years.

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Food and beverage businesses should be familiar with FICA tax tip credits

The FLSA and FICA are two of the most important federal government regulations for business owners. From calculating the right FICA taxes to filing employment taxes, staying compliant with federal regulations, and filling out the proper paperwork to get tax credits, there’s a lot that restaurant owners have to think about.

Compliance with FICA and FLSA regulations

In addition to the FICA tip credit, most restaurants also take advantage of the Fair Labor Standards Act (FLSA) tip credit. This counts as a portion of an employee’s tips toward the federal minimum wage. This is why many restaurant workers and service industry workers may be legally paid less than the federal minimum wage. But remember, taxes paid on wages below the minimum wage are not creditable for the FICA tax credit, so you can’t double-dip on both FICA and FLSA tip credits.

Overview of FLSA requirements

Beyond providing a tax credit for business owners, the FLSA protects employees from unfair pay practices and work standards. Below are a few critical FLSA requirements that all business owners should know.
⦁ Minimum wage requirements: Unless they are in a designated, tip-supported service industry, the FLSA requires businesses to pay all employees at least the federal minimum wage.
⦁ Overtime pay: The FLSA guarantees overtime pay for hours worked and details how employers should calculate it.
⦁ Child labor restrictions: The FLSA restricts the age at which children can work and the type of work they can do.
⦁ Record-keeping requirements: The FLSA requires employers to keep accurate records to maintain compliance.

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