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How Do I Calculate My FICA Tip Credit?


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Restaurant payroll - FICA tip credit calculation

Did you know your business may be eligible for a FICA credit if you have employees that receive tips? This special IRS tax credit, known as the 45(B) credit, can amount to hundreds of dollars per employee every year. Depending on the size of your payroll and how many employees you have, your business could save thousands of dollars annually.

Does My Business Qualify for a FICA Tip Credit?
If you are a food and beverage establishment where tipping is customary, you are entitled to a 45(B) credit for part of the taxes you pay on tips your employees earn. The business credit equals the employer's portion of FICA taxes - 7.65% - that has been paid on tip income in excess of the Federal minimum wage. This amount can be taken as a business tax credit on your corporate tax return by completing IRS Form 8846 and filing it with your Federal income tax return.

Calculating Your FICA Tip Credit is Easy
The example below assumes that an employee works 30 hours a week and is paid $2.13 an hour.  This employee reported $350 in tips for that week.  The Federal wage rate is $5.15 an hour for the purpose of the FICA tip credit.  In this scenario, a restaurant owner would save over $1,000 annually for this one employee.

Weekly Wages = Hours Worked x Hourly Rate + Reported Tips
                         30 x $2.13 + $350 = $413.90

Wages Paid at Minimum Wage = Hours Worked x Federal Wage Rate
                          30 x $5.15 = $154.50

Tax Credit = Weekly Wages - Wages Paid at Minimum Wage x FICA
                          $413.90 - $154.50 x 7.65% = $19.84

Annual Savings per Employee = Tax Credit x Payroll Frequency
                           $19.84 x 52 weeks = $1,031.68 Savings Annually

Get Help Calculating Your FICA Tip Credit Today!

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We are in a Credit Reduction State, IL. Every quarter I run a mock 940 to make sure all of our clients are making 940 deposits throughout the year if necessary. Is this credit reduction (additional tax) calculated each quarter or just at the end of the year when the 940 is produced for filing.

Sally...the credit reduction is calculated just at year end since the status of any particular state may change throughout the year.

How is it figured if the employee is being paid $9/hr.

So for example an employee works 20 hours and has $200 in tips. What is the credit?


Hi Rich, 

20 hours x $9.00/hr = $180.00

$180 + $200 in tips = $380

The minimum wage for the purpose of the tip credit is frozen at the rate of $5.15 per hour.

20 hours x $5.15 = $103.00

$380 - $103 = $277.  This is the amount in excess of “minimum wage” that the employee was paid.

$277 x 7.65% (the rate for the Employer’s portion of FICA) = $21.19 FICA tip credit

If this individual worked the same hours and reported the same tips each week for a year, the credit would be $$1,101.88 in FICA savings for this client- for just this one employee.  


if a client does not have a calendar year tax filing should the tip credit be calculated on the calendar year or their specific fiscal year?


Hi Gail - According to our experts here, IRS Form 8846 “Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips” is an annual (calendar year) form.  IRS doesn’t recognize a taxpayer’s fiscal year.  I hope this helps. If you have further questions, email us at socialmedia@primepay.com!


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