Payroll & Business Experts Blog

How Do I Calculate My FICA Tip Credit?

Posted by PrimePay Business and Experts Blog

Feb 16, 2010 12:00:00 PM

Restaurant payroll - FICA tip credit calculationDid you know your business may be eligible for a FICA credit if you have employees that receive tips? This special IRS tax credit, known as the 45(B) credit, can amount to hundreds of dollars per employee every year. Depending on the size of your payroll and how many employees you have, your business could save thousands of dollars annually.

Does My Business Qualify for a FICA Tip Credit?
If you are a food and beverage establishment where tipping is customary, you are entitled to a 45(B) credit for part of the taxes you pay on tips your employees earn. The business credit equals the employer's portion of FICA taxes - 7.65% - that has been paid on tip income in excess of the Federal minimum wage. This amount can be taken as a business tax credit on your corporate tax return by completing IRS Form 8846 and filing it with your Federal income tax return.

Calculating Your FICA Tip Credit is Easy
The example below assumes that an employee works 30 hours a week and is paid $2.13 an hour.  This employee reported $350 in tips for that week.  The Federal wage rate is $5.15 an hour for the purpose of the FICA tip credit.  In this scenario, a restaurant owner would save over $1,000 annually for this one employee.

Weekly Wages = Hours Worked x Hourly Rate + Reported Tips
                         30 x $2.13 + $350 = $413.90

Wages Paid at Minimum Wage = Hours Worked x Federal Wage Rate
                          30 x $5.15 = $154.50

Tax Credit = Weekly Wages - Wages Paid at Minimum Wage x FICA
                          $413.90 - $154.50 x 7.65% = $19.84

Annual Savings per Employee = Tax Credit x Payroll Frequency
                           $19.84 x 52 weeks = $1,031.68 Savings Annually

Get Help Calculating Your FICA Tip Credit Today!

Topics: tipped employees, restaurant payroll

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