Despite the fears you once had of entering the restaurant industry, your Mom-and-Pop sandwich shop is flourishing. You have great food, loyal customers, and a happy staff that keeps your business up and running smoothly.<\/p>\n
As a restaurant owner, it\u2019s important to stay well-versed in the laws that affect your business, especially those that can actually save you money. Here\u2019s what you need to know about the FICA Tip Tax Credit and what it could mean for your business. Use our\u00a0FICA Tax Tip Credit Calculator<\/a>\u00a0to estimate contribution amounts.<\/p>\n The Federal Insurance Contributions Act (FICA) says that the tips your restaurant employees receive from customers count as taxable income for which you can earn credit.<\/p>\n Whether these tips come in the form of cash or from a card, you are required by law to report them and pay taxes on them.<\/p>\n A credit is a \u201cdollar for dollar reduction of your regular tax liability, where an expense deduction only reduces your taxable income.\u201d The FICA Tip Credit is the employer\u2019s share of the employment taxes on the tips given to his\/her employees.<\/p>\n The\u00a0IRS<\/a>\u00a0lists two criteria that must be met in order to be eligible for the FICA Tip Tax Credit:<\/p>\n It\u2019s important to note that payment is only considered a true \u201ctip\u201d if it is\u00a0additional\u00a0<\/em>pay to the minimum wage rate of your state. In other words, if you are paying your employees $4.75\/hr and your\u00a0state\u2019s minimum wage rate<\/a>\u00a0is $7.25\/hr, the money that can be reported for the FICA Tip Credit are only the tips that put them over a $7.25\/hr rate.<\/p>\n As an employer you must withhold 4.2% of the tips for Social Security taxes and 1.45% for Medicare taxes. Additionally, you must pay your share of the employment taxes, 7.65% (6.2% for Social Security and 1.45% for Medicare.)<\/p>\n It\u2019s also important to know the difference between a credit and an\u00a0expense deduction<\/a>, because you cannot claim both. Credits are typically more beneficial, but you should also sit down with your accountant and decide which one is best for your business.<\/p>\n The FICA Tax Credit is part of the general business tax credit. It can be claimed on Form 8846 under \u201cCredit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips.\u201d<\/p>\n The best way to keep your restaurant business booming is to stay up to date on industry-specific regulations such as these. Talk to your accountant to find out if the FICA Tax Tip Credit can be implemented at your business today.<\/p>\n PrimePay can partner with you to offer support throughout the entire employee lifecycle. Learn more about how PrimePay can help you streamline Payroll & Human Resources processes.<\/p>\nWhat is it?<\/h3>\n
Am I eligible?<\/h3>\n
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What employers need to do:<\/h3>\n
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