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Is Your Restaurant Claiming The Tip Credit?

Do you run a local restaurant that receives tips? Ever heard of the tip credit? Read on to learn how your restaurant can save some serious money!


What Is The Tip Credit?

Enacted in 1993, it is a Federal credit that allows a restaurant to reduce their business income tax by their employer portion of FICA taxes paid on certain tip income. The credit is non-refundable and subject to carryback and carryforward rules.

Claiming the credit, the restaurant owner reduced their income tax by $4,590.


How Does The Tip Credit Work?

A restaurant must report tips of $20 or more each month for each employee and withhold both employee and employer FICA taxes. The tip credit equals the employer’s share of FICA tax paid on employee tips. The restaurant cannot claim the credit on any portion of tips used to meet the federal minimum wage for any employees.

The employer files Form 8846 Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips to claim the credit. Restaurants taxed as Partnerships and S-Corps report this amount on Sch. K to flow through to the owner’s return. All other tax entities report this on Form 3800 General Business Credit.


A restaurant reported total tips in excess of minimum wage of $60,000 for the year. As a result, the restaurant paid $4,590 in employer FICA taxes (7.65%). Claiming the credit, the restaurant owner reduced their income tax by $4,590.


Who Qualifies For The Tip Credit?

This credit applies to any food or beverage establishment where tipping is customary and the employer paid FICA taxes on those tips.


Working With Haworth & Company

This is just one of the ways a professional accountant can help your restaurant succeed, but there are many others benefits as well. We’ve saved our restaurant clients thousands of dollars with this one credit alone and would love to help you too. If you own a restaurant in the Twin Cities or Southeastern Minnesota give us a call and let’s see what we can do!


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