From: Jeff Brooks, CPA Dear Restaurateur client , here is my understanding:  Although the IRS only says there are two requirements for the credit, they also go on to explain that the credit is only on amounts above the minimum wage requirement.  The federal minimum wage for 2011 is $7.25/hr.  If you are paying your wait staff $3.25/hr and they turn in tip income of $6/hr, then you are entitled to calculate the FICA Tip Credit on the extra $2.00/hr ($3.25+$6.00=$9.25 – $7.25 = $2.00).  The employer portion of Social Security & Medicare is 7.65% of the wages, so depending on the actual wages for the full year above the minimum wage requirement and number of employees falling into this category the Credit can add up fast.  The amounts over the minimum wage requirement are then put on form 8846.


Because the FICA Tip Credit is a tax credit, the deduction that you took for the payroll taxes must be added back to income.  This is to prevent double dipping of both the credit and deduction.  Tax credits are a dollar for dollar tax reduction, and deductions just reduce taxable income.  Therefore, taking this credit helps you benefit more.  This Credit doesn’t need to be money just left on the table, make sure whoever is doing your payroll is calculating it properly.

Jeffrey Brooks, CPA , CFP, MBA

JBrooks Wealth Advisors, PC


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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

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Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009