The FICA Tip Credit is a business tax credit for employer-paid Social Security and Medicare taxes on employee tips.
What employers are eligible?
If you had employees who are customarily tipped and were tipped for providing, delivering or serving food or beverages, and you paid Social Security and Medicare taxes on those tips, you are eligible to claim the credit. Most commonly, restaurants and bars claim the credit; but even country clubs, golf clubs and social clubs – as long as they have food and beverage operations – can claim the credit on their income tax returns.
How much is the credit?
The credit is equal to 7.65 cents per dollar of tips received by employees for which the employer paid Social Security and Medicare taxes. Example A: As an employer, you paid Social Security and Medicare taxes on $10,000 of employee tips. Your credit would be $765. However, the tip credit is reduced for any employees who are paid less than $5.15 an hour. If an employee’s non-tip wages are less than $5.15 per hour, 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.
How do I claim the credit?
The credit is claimed on Form 8846 and is part of the general business credit. It is a nonrefundable credit, but any unused credit amounts can be carried back or forward to other tax years.
If you think your business could benefit from the FICA Tip Credit, let us know. We can help make sure you are receiving all the tax credits you deserve. For questions and additional information, please contact Mike Jones, Tax Senior at Tronconi Segarra & Associates. He can be reached at 716.633.1373 or mjones@tsacpa.com.
