The FICA tip credit is worth 7.65% of the tips your employees report, credited dollar for dollar against your income tax. A restaurant with $500,000 in reported tips in a year qualifies for about $38,250 for that year. Because up to 3 prior tax years can also be claimed, the total for an established restaurant is often several years of credits combined. There are no upfront costs and no out-of-pocket money. You pay only if a credit is secured.
The math is simple: reported tips for the year, multiplied by 7.65%, the employer share of FICA tax. These examples are illustrative; your exact credit comes from your payroll records and qualifying wages.
| Reported tips in one year | Credit for that year |
|---|---|
| $200,000 | about $15,300 |
| $500,000 | about $38,250 |
| $1,000,000 | about $76,500 |
On top of the current year, up to 3 prior tax years can be claimed as well. A restaurant reporting $500,000 in tips a year could therefore be looking at roughly four years of credits in a single claim, before fees.
Every pay period, you pay the employer share of FICA tax on the tips your staff report, 7.65% of those tips, on top of the tax on their wages. It is a real cost that has been built into restaurant payroll for decades. The FICA tip credit, Internal Revenue Code section 45B, gives that money back as a credit against income tax.
Unlike a deduction, a credit reduces the tax bill itself, dollar for dollar. And it is not a one time event: once claimed, it applies every year your team reports tips.
How is the credit calculated? The credit equals the employer share of FICA tax, 7.65%, paid on qualifying reported employee tips. Multiply a year of reported tips by 7.65% for a first estimate. The exact figure comes from payroll records and qualifying wages, which the free eligibility check reviews.
Can I claim past years? Yes. The credit can be claimed retroactively for up to 3 prior tax years, and then every year going forward.
Does it reduce my tax dollar for dollar? Yes. It is a tax credit, not a deduction, so it reduces the income tax owed by the full amount of the credit.
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.: the work is done on a success fee basis only, and if no credit is secured, there is nothing to pay.
Free check. Success fee only. No upfront cost.