Many restaurant owners are missing out on a significant tax savings opportunity (free money!) by failing to claim the FICA tip credit when they file their tax returns. The “Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips”, otherwise known as the “FICA tip credit”, is a nonrefundable credit that is available to taxpayers whose employees are receiving tips from customers for providing, delivering, or serving food or beverages for consumption. If you as the employer paid social security and Medicare on these tips as they were reported to you by the employee throughout the year, you are likely entitled to this tax credit.
The credit is limited if you are not paying your employees minimum wage, but as long as you are paying minimum wage, you should be entitled to a credit for the entire portion of FICA taxes paid on these tips. In order to estimate the tax benefit of your FICA tip credit, you can multiply the “social security tips”, box 7 of your Form W-3, Transmittal of Wage and Tax Statements, by 7.65%. This credit is a nonrefundable credit, meaning that you […]