Learn more about the case Connelly v. United States. ...
This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.
The FICA Tip Credit was enacted to provide tax relief to a business paying employment taxes on tip income and can potentially save employers hundreds of dollars per employee.
To calculate the credit, employers must first calculate an amount known as “creditable tips.” Tipped employees are typically paid an hourly rate below the federal minimum wage rate. The creditable tips calculation removes the tip income that makes up the difference between the employee’s hourly wage and the federal minimum wage.
Example: Restaurant LLC operates a restaurant and employs Jane. Jane worked 150 hours and received $600 in wages and $900 in tips last month. The federal minimum wage is $7.25 and the FICA and Medicare tax rate is 7.65%. The FICA Tip is calculated based on the following:
It is important to note that in order to qualify as a “tip,” the customer cannot be required to pay it and must have the right to determine the amount. If the employer dictates the receipt or amount, such as a service charge applied to a bill and shared among multiple employees, the amount will generally not qualify for the credit.
It is also important to note that if the state minimum wage rate is higher than the federal minimum wage rate, the higher rate applies.
The information needed to calculate the credit should be readily available from the business’s payroll provider.
The credit can be claimed by filing Form 8846 (Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips) with the business’s annual income tax return.
For further information on this credit program, please contact Schneider Downs.
Learn more about the case Connelly v. United States. ...
Learn more about the case Connelly v. United States. ...
We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.
Ask us
[email protected]
p:412.261.3644
f:412.261.4876
[email protected]
p:614.621.4060
f:614.621.4062
[email protected]
p:571.380.9003