What Is the FICA Tip Credit? Five Things for Restaurants to Know About an Often-Missed Tax Credit

3 Min Read By Terracina Maxwell

The FICA Tip credit  (FICA stands for Federal Insurance Contributions Act) is a federal income tax credit that was enacted to offer financial relief to businesses in the food service industry that has employees who receive part of their wages through tips given by customers. The tax credit was originally designed to deter businesses from hiding or underreporting tip income and prevent an unintended financial burden on those businesses for their share of the FICA tax on reported tips. 

If you own a restaurant or bar and have employees who receive tips, you are likely eligible to receive the FICA tip credit. Not to mention it’s well-known that bartenders, waiters, and waitresses make minimum wage, and in some cases, less than that. For reference, the current minimum wage for tipped employees is $2.13. In addition, with the current economic uncertainty, now is a great time to take advantage of this credit as tax season is quickly approaching.

Here are five things to know about…