FICA Tip Credit
Employers in the food and beverage industry can claim the FICA tax credit for a portion of social security and Medicare taxes paid on employee tips.
Commonly referred to as FICA tip tax credit and tip tax credit.
Do I Qualify for the FICA Tip Credit?
If you own a business in the food and beverage industry where tipping is customary, you can claim the FICA tax credit for the social security and Medicare taxes you paid on your employees’ tips.
2022 FICA Tip Credit Details
The FICA (Federal Insurance Contributions Act) tip tax credit is a credit employers in the food and beverage industry can claim that is equal to the social security and Medicare taxes the employer paid on the tips received by their employees. It does not apply for tips used to meet the federal minimum hourly wage rate. The credit reduces tax liability dollar for dollar and passes through to partners or shareholders of partnerships and S corporations.
Claiming the Credit Vs. Taking the Deduction
Employers are given a choice of either:
Taking a deduction for the employee tips that are not used to meet minimum wage, or
Claiming the social security and Medicare taxes paid on those tips as a credit against their corporate income tax
A business cannot claim both the credit and the deduction. If the business claims the credit, they must reduce social security and Medicare tax deductions accordingly.
Who Should Claim the FICA Tip Credit?
According to the IRS, you should file Form 8846 to claim the credit if both of the following are true:
You had employees who received tips for food or beverage service in your restaurant where tipping is customary.
You paid social security and Medicare taxes on those tips.
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Benefits
Provides dollar-for-dollar tax savings
Considerations
Cannot deduct wages used to calculate the credit from taxable income
Paperwork is required to substantiate the credit
Assumptions When Taking the FICA Tip Credit
N/A
Requirements to Claim the FICA Tip Credit
Only for a food or beverage establishment where tipping is customary
Only for employer social security or Medicare taxes paid on those tips
Cannot claim the credit if the business has already taken a deduction for the tips
Business Entities That Can Claim the FICA Tip Credit
Schedule C
Schedule F
S Corporation
C Corporation
Partnership
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.