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FICA tip credit calculator

Enter a few numbers from your payroll so you can see whether your FICA tip credit is worth a call to your accountant.

You'll need: A year's tips reported through payroll (the four quarterly Forms 941 your payroll files, or your payroll tips report), the hours tipped staff worked that year, and your state.

By · Updated · How it's worked out

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Your FICA tip credit estimate

US federal tax only. Nothing you type is sent to us.

FICA is the Social Security and Medicare tax an employer pays: 7.65% of pay, including the tips staff report through payroll. The FICA tip credit lets a restaurant count that tax on tips as a credit against its federal income tax, apart from the tips needed to bring each tipped employee's cash wage (the hourly pay before tips) up to $5.15 an hour. Form 8846 is the IRS form a business claims it on.

Example numbers. Replace them with yours.

  1. Does your business tax return already include Form 8846?

    Look on Form 3800, Part III, line 4f, or for the credit on a K-1 from the business, or ask your accountant. Form 3800 is the form that adds up a business's tax credits; a K-1 is the form a partnership or S corporation gives each owner. Not sure is a fine answer: the result says what to check.

  2. Texas's tipped cash wage: $2.13 an hour.

    Where the restaurant is. It sets your staff's tipped cash wage from the US Department of Labor's table.

  3. What tipped staff were paid an hour before tips that year, if it wasn't the state's tipped wage: a city's rate, or more. Leave it blank to use Texas's $2.13.

  4. Add up line 5b of the year's four Forms 941, or box 7 of the W-2s, or take the year's total from your payroll tips report. Leave out service charges, automatic gratuities and delivery fees: they're wages, not tips. Form 941 is the payroll tax return your payroll company files every quarter; a W-2 is each employee's pay statement for the year.

  5. Needed here: the cash wage, $2.13, is under $5.15, so the hours decide how many tips count.

    Needed only when the cash wage is under $5.15: the year's hours for staff paid the tipped wage, from the payroll hours report. Counting staff paid more too only makes the figure more cautious.

  6. How the business files its taxes

    It decides who uses the credit, and what the deduction it replaces is worth. It's the return the business files: Form 1120 for a C corporation, 1120-S for an S corporation, 1065 for a partnership, or Schedule C on the owner's own return for a sole owner.

  7. Does the business usually owe federal income tax?

    For an S corporation, partnership or LLC, whether its owners usually owe federal income tax on its profits.

With the example numbers

7 reasons the real answer may be $0

  • It may already be claimed

    If your return already includes Form 8846, there may be nothing left to find. Look on Form 3800, Part III, line 4f, or for the credit on a K-1 from the business, or ask your accountant.

  • It only lowers income tax owed

    If no federal income tax is owed (by the business, or by its owners for an S corporation, partnership or LLC), the credit can't be paid out this year: it only lowers income tax. Credit that can't be used is kept: it can go against the tax of the year before (1 year back) or be saved for up to 20 years ahead.

  • Service charges aren't tips

    Service charges, automatic gratuities and delivery fees aren't tips. They're wages and earn no credit, so leave them out of the tips.

  • Only payroll tips count

    Tips that never ran through payroll earn nothing: the credit is only on tips the business paid Social Security and Medicare tax on.

  • Counter tips may not count

    It only covers serving or delivering food and drink where customers customarily tip. Whether tips on a counter's card screen count isn't settled: ask your accountant.

  • Only the business can claim it

    Only the business can claim it, on its own return: an owner can't claim it alone on a personal return (Caselli v. Commissioner, 2018).

  • Hands-off owners may not use it

    Owners who don't regularly work in the business may not be able to use their share yet (the IRS calls these the passive-activity rules): ask your accountant.

Your business may have generated about $12,383 to $12,419 of FICA tip credit in a year like this.

Used against income tax, it's worth about $7,801 to $11,177 after the deduction it replaces: a credit cuts the tax itself, dollar for dollar, but claiming it means giving up the deduction for the same Social Security and Medicare tax (a deduction only lowers the income the tax is worked out on), so the business or its owners keep about 63 to 90 cents of each credit dollar, depending on the business type and federal rate (21% for a C corporation, 10% to 37% for owners of other businesses), before any state tax effects.

The IRS's FICA Tip Credit web page (updated August 16, 2026) uses $7.25 an hour where the law and Form 8846 use $5.15. At $7.25, the most cautious reading, it would be about $11,419.

Cash wage used: $2.13 an hour, Texas's tipped cash wage in the US Department of Labor's table as of July 1, 2026. If you paid a different wage that year (a city's rate, a smaller business's rate, or more), type the wage you paid: a higher cash wage lets more tips count, up to $5.15.

How the range is worked out

How the range works: the law works it out employee by employee, month by month. From a year's totals, the low end sets aside $3.02 of tips for every hour worked ($5.15 − $2.13), 6,000 hours × $3.02 = $18,120 in all, to bring the cash wage up to $5.15. The high end allows for months when someone's tips didn't cover that gap, which set aside only the tips there were. Overtime, top-ups to the minimum wage, service charges paid out as wages and non-tipped shifts count as cash wage too, and can only raise it, never past 7.65% of all the tips ($13,770).

Years that may still be open: 2023, 2024 and 2025.

A missed year can generally be claimed within 3 years of its return's due date. For a calendar-year business filed on time, 2023's window closes around March 15, 2027 for an S corporation or partnership, and closes around April 15, 2027 for a C corporation or sole owner.

Extensions, late filing and fiscal years change the dates, so your accountant confirms them.

A partnership under the 2015 audit rules files an administrative adjustment request instead of an amended return, and the change passes to its partners.

If one tipped employee's wages plus tips topped the Social Security wage base ($184,500 in 2026, $176,100 in 2025), the tips above it earn 1.45%, not 7.65%, which makes the figure a little lower.

Not answered, so read as "not sure": whether your return already includes Form 8846, how the business files and whether federal income tax is owed.

We don't file anything and we aren't accountants.

This is an estimate from a year's totals to take to your accountant, not a figure for a tax return: your accountant decides whether and how to claim it.

How the FICA tip credit works

When staff report tips through payroll, the restaurant pays the employer's FICA on them: 6.2% Social Security plus 1.45% Medicare, 7.65% in all. The law, 26 USC 45B, lets the business count that tax as a credit against its federal income tax, on Form 8846. The tips that don't count are the ones needed to bring each tipped employee's cash wage up to $5.15 an hour, the federal minimum wage on January 1, 2007, which the law keeps for restaurants.

FICA tip credit
FICA tip credit = 7.65% × (tips − hours × ($5.15 − cash wage))

Worked out per employee, per month, on tips reported through payroll. The calculator works from a year's totals, so below $5.15 it shows a range.

Where tipped staff are paid $5.15 an hour or more in cash, every reported tip counts. At the federal $2.13 cash wage, the first $3.02 of tips each hour don't. The IRS's own web page about it uses $7.25 instead; the law and the form say $5.15, so the calculator uses $5.15 and shows the $7.25 figure beside it as the most cautious reading.

It's worth less than it looks. Claiming it means giving up the deduction for the same tax, it only lowers income tax that is owed, and only the business can claim it. Your state's tipped cash wage, and what changes in 2027, are in the tipped minimum wage guide.

Common questions

Where do I find a year's reported tips and hours?

Add up line 5b of the year's four Forms 941, the payroll tax return filed every quarter, or box 7 of the W-2s. Payroll systems such as Toast and Gusto also have a FICA tip credit report made for accountants. The hours are in the payroll hours report: count the hours of staff paid the tipped cash wage.

Do service charges and automatic gratuities count?

No. A charge the restaurant sets, such as an automatic gratuity on large parties or a banquet fee, is a wage, not a tip, under Revenue Ruling 2012-18, and earns no FICA tip credit. Leave them out of the tips, and leave out delivery fees too.

Does "no tax on tips" change it?

No. That's an income tax deduction for the people who get the tips, and it doesn't change what the restaurant pays or the FICA tip credit it can claim. What it means for restaurant owners.

What do I do with the estimate?

Take it to your accountant. They can check whether your returns already include Form 8846 and, if not, whether the years still open are worth amending, employee by employee. We don't file anything and we aren't accountants.

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