FICA Tip Tax Credit

The FICA Tip Tax Credit is a federal tax incentive available to employers in the food and beverage industry who have employees that receive tips. This credit allows businesses to recover a portion of the Social Security and Medicare taxes they pay on employees' reported tip income.

How It Works:

Employees who earn tips are required to report them to their employer.
Employers must then pay their share of FICA taxes (7.65%) on those reported tips.
The IRS offers a dollar-for-dollar tax credit to employers for the amount of FICA taxes paid on tips that exceed the federal minimum wage.

Who Qualifies:

Restaurants and food service establishments where tipping is customary.
Employers who pay the required share of FICA taxes on employee-reported tips.

Why It Matters:

Directly reduces your federal tax liability.
Increases your business's bottom line by recouping payroll tax expenses.
Easy to calculate and claim annually with proper payroll records.