How to Calculate FICA Tip Tax Credit

Calculating FICA Tip Tax Credit
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If you have tipped employees at your food or beverage business and you paid Social Security or Medicare tax on the employee's tips, you should qualify for the FICA Tip Tax Credit. Assuming your employees' tips exceeded the $5.15 federal minimum wage that you are required to pay FICA taxes on, you can recoup the extra taxes paid on wages exceeding that amount (due to the employees' reported tips).

Step 1

Locate all of your tipped employees' W-2s.

Step 2

Calculate each tipped employee's hourly wage plus the employee's average tipped wages. For example: $2.13 per hour + $8 = $10.13.

Step 3

Subtract the total hourly wage paid from the minimum wage. For tipped employees, this figure is $5.15, even though the federal minimum wage has increased. For example: $10.13 - $5.15 = $4.98. This is the hourly amount that is eligible for the FICA Tip Tax Credit.

Step 4

Multiply the hourly amount by the FICA rate. For example: $4.98 x 7.65 percent = 38 cents. For every hour that the employee works, you can take a 38 cent credit.

Step 5

Transfer this information to the IRS Form 8846 and attach to your tax return.

Warning

You cannot claim both the FICA credit and take the deduction on FICA wages.

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