FICA Tax Credit Services

Tip Credit Guidance



Tommy Lee

Retail, Franchise & Hospitality Leader | Tax Practice | PPP & ERC Advisor

How we can help

As if running a successful restaurant or hospitality business isn’t hard enough, owners and operators must content with the accounting and regulatory challenges associated with compensating both hourly and tipped employees. The rules about what counts as a tip, how much you as an employer must pay your employees, and whether they have to contribute to a tip pool, are confusing and vary by state. Employers must follow the law that is most generous to the employees – be it federal, state, or even local.

State laws differ as to whether the employer must pay the full minimum wage itself or may count an employee’s tips toward its minimum wage obligation. Under federal law and in most states, employers may pay tipped employees less than the minimum wage, as long as employees earn enough in tips to make up the difference. This is called a “tip credit.”

Aprio knows that working through these income tax matters can be overwhelming for busy restaurateurs. That’s why our advisors provide guidance accounting for and reporting eligible tip income and complying with the Federal Insurance Contribution Act (FICA) to maximize the benefits of this tax credit.

With more than 65 years of experience offering business advisory services, Aprio knows how important tax credits can be for growth, whether you manage a small family-owned café or a large chain of restaurants. That’s why our advisory team strives to offer superior tax credit guidance and personalized service to your restaurant business.

Whether you have a handful of tipped employees or a crew that numbers in the hundreds, our experienced advisors can get your restaurant’s tax matters on track. Discover how Aprio offers business tax credit assistance and learn how to start working with our FICA tip credit advisory team.

How Aprio Approaches the FICA Tip Credit

Whether you’re already aware of the FICA tip credit and require assistance to ensure compliance or you’re just hearing about this tax credit for the first time and need guidance to get started, Aprio’s knowledgeable advisors can work with your team to help you apply the tip credit to benefit your business.

Your Aprio Advisor will help you understand the rules relating to tip eligibility and how they apply to your unique business situation. Generally, eligible tips are voluntary and ineligible tips are mandatory service charges, such as those often applied to large dining parties.

Another complexity arises from the use of credit cards.  State rules differ as to whether employees are entitled to the full amount of a tip left on a credit card. Some states allow the employer to subtract an appropriate percentage of the tip to cover the credit card company’s service charge.  The state of Georgia’s laws do not address the issue of credit card processing fees so this can be a grey area that needs careful consideration.

When we begin working with our restaurant clients, we typically start with a comprehensive consultation. We analyze the differing ways that you collect tips and determine the specific tips that are eligible for the tip credit. We review your documentation with you, taking care to explain whether the way your business collects tips and the amount you’ve collected, enables you to pursue this tax credit for your restaurant. In our analysis, we’ll refer to the United States Department of Labor’s documentation on tipped employees under the Fair Labor Standards Act (FLSA) as well as any relevant tax codes.

As a general rule, your restaurant can receive a federal tax credit for the social security tax you pay on eligible tips. Eligible tips are calculated as the difference between the total tipped income minus the federal tipped employee minimum wage of $5.15. Please note that the $5.15 tipped wage base is used in this calculation regardless of the federal, state or local minimum wages imposed on your restaurant.

To ensure that your company’s calculations are accurate and your reporting is correct, our advisors will review your tip credit worksheets and review your documentation.

Since this social security tax credit can offset your restaurant’s federal income tax obligation, pursuing this credit could have a substantial benefit on your business. When you work with Aprio’s dedicated advisory team, we’ll provide the guidance you need to make the most of these federal tax credits. With our advisors working alongside your management team, you can rest assured that you’ll be able to reduce your federal income tax obligation as much as possible while still maintaining compliance and providing accurate tax reporting.

Partnering with your Aprio’s advisory team, can help you reduce your federal income tax obligation, which means more savings for your business. Whether you translate that to additional profit for your restaurant or a growth opportunity for your business, using the FICA tip credit offers myriad benefits.

How to Get Assistance With Social Security Tax Credits

Like all savvy business owners, restaurant operators should strive to minimize tax-related expenses while maximizing applicable tax credits. No matter the size of your restaurant or the number of employees you have on staff, pursuing the FICA tip credit could help you achieve both objectives, provided that your employees accept tips. Whether you manage a new restaurant or your café has been in business for years, Aprio’s knowledgeable business tax advisory team can guide you through the FICA tip credit process and assist you with claiming all applicable tax credits.

At Aprio, we know that operating a restaurant requires an incredible amount of dedication and skill. It may not leave you with sufficient capacity for maintaining tax compliance, meeting reporting requirements, or pursuing relevant credits that can benefit your business. That’s why we’ve worked as trusted business advisors since 1952, providing reliable tax advice for both small and large businesses in a range of rapidly growing industries.

Aprio’s Retail, Hospitality, and Franchise Team is proud to offer our years of experience and specialized advisory services to restaurant and hospitality clients. To learn how Aprio can assist your restaurant with navigating FICA matters and pursuing tip credits, contact Tommy Lee to discuss business tax credits.

FICA Tax Credit Services



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