Yes. Every pay period you pay the employer share of FICA tax, 7.65%, on the tips your staff report. The FICA tip credit gives that money back as a credit against your income tax, dollar for dollar. It can be claimed for up to 3 prior tax years as well as the current year. There are no upfront costs and no out-of-pocket money. You pay only if a credit is secured.
The credit is claimed on your business income tax return. It is not a deduction, so it reduces the tax bill itself by the full amount of the credit. A restaurant with $500,000 in reported tips in a year qualifies for about $38,250 for that year, and an established restaurant claiming the current year plus up to 3 prior years in one filing can be looking at several years of credits combined.
Most accountants never mention it because they are not aware of it. It sits in a corner of the tax code, Internal Revenue Code section 45B, that general practice accountants rarely touch, which is why specialists who focus only on this credit handle the calculation and the filing.
Want a number for your own restaurant first? The free tip credit estimator gives you a range in about a minute from your tipped headcount and reported tips.
Is it a refund check or a tax credit? It is a tax credit, which reduces the income tax you owe dollar for dollar. Claiming several years at once can cut the tax bill sharply or create a refund position, depending on the return.
How far back can I claim? Up to 3 prior tax years, plus the current year, and then every year going forward. The exact years available depend on filing deadlines, which the free eligibility check reviews.
What does it cost? The eligibility check is free. There are no upfront costs and no out-of-pocket money. You pay only if a credit is secured. If no credit is secured, there is nothing to pay.
Free check. Success fee only. No upfront cost.