An employer credit, not an employee deduction — restaurants and similar tipped-service businesses can claim a credit for the employer-paid FICA tax on tips exceeding a frozen reference wage.
How it works
Hours worked times a $5.15/hour reference rate (frozen since 2007, unaffected by later minimum wage increases) gives the wage floor. Tips above that floor are eligible for the credit, computed at the 7.65% employer FICA rate.
What this does not include
This calculator applies the traditional restaurant/food-service $5.15/hour reference rate — for beauty service businesses newly eligible for this credit starting after 2024, the reference rate is instead the current federal minimum wage ($7.25/hour), a different threshold than this calculator uses.
How to use this calculator
- Enter total reported tips and total hours worked by tipped employees.
Frequently asked questions
Why is the reference wage frozen at $5.15/hour?
The Small Business and Work Opportunity Tax Act of 2007 froze this specific reference rate, meaning later increases to the actual federal minimum wage don’t reduce the credit’s calculation.
Which businesses can claim the FICA tip credit?
Traditionally food and beverage establishments where tipping is customary — recently expanded to also include certain beauty service businesses for tax years beginning after 2024.
How is this credit claimed?
On Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, filed with the employer’s business tax return.
