FICA TIP TAX CREDIT REPORT

by Big Fish Employer Services

 
 
 

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as the Employer Services Provider for your restaurant.

Running a restaurant and managing payroll with accurate information can be complicated because of tips that employees receive. Both employees and business owners must pay FICA taxes on tips, which can be a headache for restaurant owners.

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THE RESTAURANT INDUSTRY IS UNIQUE.




In the Restaurant industry, proper accounting associated with wages can be a complicated process due to the tips that the staff might receive from customers.  Restaurant owners are required by law to pay taxes on the tipped portion of an employee’s earnings since they are defined as income through the Federal Insurance Contributions Act (FICA).  

Employers in the Restaurant, food and beverage industry are entitled to a credit for the Social Security and Medicare taxes that are paid on employees tipped income.  The credit is available under the Internal Revenue Code (IRC) Section 45B.  To qualify for the credit, establishments must have had employees that received tipped income from serving food for consumption, delivering or serving beverages.  In addition, the establishment must have incurred or paid social security and Medicare taxes on the tipped portion of the wages.  

To take advantage of this credit, employers need to request the FICA Tax Tip Credit on their tax returns.  Most restaurant owners either are not aware or don’t take the credit because the tip calculations on income can be cumbersome to reconcile.  Considering all the tipped employees in an establishment the credits could be significant and account for credits of hundreds of dollars per employee per year.   

This credit was created so Restaurants could recover the FICA taxed tipped portion of an employee’s earnings.    

The tax benefit is significant and for Restaurant owners to take full advantage of this credit, the professionals at Big Fish Employer Services can help navigate and recover appropriate credits.   




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