Reminder—Food and Beverage Industry Businesses May Be Eligible for an Income Tax Credit for FICA Taxes Paid on Tips

By William R. Stromsem, J.D., CPA, Assistant Professor, Department of Accountancy, George Washington University School of Business

Now that customers are back in restaurants and bars, a reminder might be in order of a tax break for these businesses. Many employers that sell food and beverages (in a bar or restaurant or delivered) may be unaware that they may have a substantial income tax credit for the employer’s share of Social Security and Medicare taxes paid on reported tips above the minimum wage.

Tipped workers report their tip income to employers, and employers pay FICA taxes on tip income even though technically the compensation was paid by the tipper, not the restaurant or bar. This credit is intended to provide relief for payment of FICA taxes on income over the minimum wage, the amount that the employer would have had to pay FICA taxes on if there were no tips. On the cynical side, some might say that this credit is intended to discourage businesses from underreporting tips to avoid paying the FICA taxes.

This credit is claimed on IRS Form 8846 and the instructions give calculation details. https://www.irs.gov/pub/irs-access/f8846_accessible.pdf