TIP TAX CREDIT
What Is the FICA TIP TAX CREDIT
When employees receive tips, employers generally pay their share of Social Security and Medicare taxes on that tip income. The §45B FICA Tip Credit allows qualifying businesses to claim a federal income tax credit based on the employer-paid FICA taxes associated with certain employee tips.
Unlike a deduction that simply reduces taxable income, this is a tax credit that can directly reduce federal income tax liability. And for businesses that continue to have qualifying tipped employees, the opportunity may continue year after year.
In simple terms: if your business has qualifying tipped employees, some of the payroll taxes you’re already paying may create a valuable tax-credit opportunity.
Who Qualifies for the Tip Tax Credit?
The §45B FICA Tip Credit is available to certain businesses with employees who customarily receive tips. Current eligibility includes qualifying food and beverage businesses as well as certain beauty and personal-care businesses beginning with tax years after 2024.
FOOD & BEVERAGE
Restaurants
Bars & Taverns
Cafes
BEAUTY & PERSONAL CARE
Hair Salons & Barbershops
Nail Salons
Esthetics Businesses
Your Business May Be a Good Fit If:
✓ You have W-2 employees who receive tips from customers.
✓ Those tips are reported through payroll and subject to employer Social Security and Medicare taxes.
✓ Customers voluntarily determine the tips they leave.
✓ Your business pays the employer portion of FICA taxes on qualifying tip income.
✓ You aren’t already claiming the credit for the applicable tax year.
Tips vs. Service Charges
Mandatory service charges and automatic gratuities generally aren’t treated as tips for purposes of the credit. Qualifying tips are voluntary amounts determined by the customer.
Not Sure If Your Business Qualifies?
You don’t need to figure it out yourself. We’ll review your business and available information to determine whether the FICA Tip Credit may be worth pursuing.
How It Works
01
We Review
We review your business, tipped employees, payroll information, and available tax filings to determine whether the FICA Tip Credit may be worth pursuing.
02
We Calculate
Our team analyzes reported tips, wages, and employer-paid FICA taxes to calculate the credit available for qualifying tax years.
03
We Prepare
We prepare the credit calculation and supporting documentation, including prepopulated forms for your tax professional.
04
Your CPA Files
You provide the completed information to your CPA, who applies the credit to your tax return. When eligible prior years are available, amended returns may also be used to recover qualifying credits.
Stop Leaving Valuable Tax Credits Unclaimed
See If Your Business May Qualify for the FICA Tip Credit.
If your employees earn and report tips, your business may be eligible for a federal tax credit based on FICA taxes you’re already paying. Let us help determine whether there’s an opportunity worth pursuing.